(Recasts with PDVSA confirmation)
By Ana Isabel Martinez and Corina Pons
MEXICO CITY/CARACAS, Sept 13 Venezuela's state
oil company PDVSA on Tuesday proposed a bond swap for $7 billion
in outstanding debt to lower the financial burden on the
cash-strapped company, which is at the center of the OPEC
nation's unraveling socialist economy.
Reducing the hefty maturity payments due by the end of 2017
could help President Nicolas Maduro's government ease chronic
shortages by making more dollars available to import goods
ranging from rice to cancer medicine.
But investors may remain skeptical that the proposal does
not address underlying problems with Venezuela's state-led
socialist economy, such as dysfunctional state-run companies,
rigid price controls and corruption-riddled currency controls.
"We had a peak of debt payments and we're kicking them
forward," said PDVSA President Eulogio Del Pino in comments
broadcast on state television. "We are seeking financial relief
from the payment of these bonds."
Venezuela is reeling under low oil prices and a steady decay
of its economic system. Inflation is in the triple digits, the
economy is in a deep recession, and citizens routinely spend
hours in line search of basic staple products.
Investors for months fretted that Venezuela was on its way
to default, but have become more optimistic in recent weeks on
signs the Maduro government will continue making payments
despite adverse circumstances.
The swap operation offers a new bond maturing in 2020 in
exchange for bonds coming due before 2017, Del Pino said. It
will include amortization payments in 2017, 2018, 2019 and 2020.
He added that the bond will be backed by shares in PDVSA's
refining unit Citgo, and that ratings agencies had given a
"positive" evaluation of the new bond.
PDVSA's $1 billion 2016 bond comes due in
October. The company also faces the $3 billion maturity of the
PDVSA 2017 bond in April and two amortization
payments of $2 billion each on the PDVSA 2017N bond
that must be made at the end of this year and the
end of next year.
The success of the operation will depend on participation of
PDVSA's bonds were up across the board, with the PDVSA 2017
up 3.50 points to a bid price of 71.50 and the 2017N bond up
1.55 points to 76.55.
Investors consulted by Reuters in recent weeks said they had
no formal conversations with PDVSA regarding the operation,
which is a common way of gauging market conditions and ensuring
bondholders are aware the operation is on its way.
Analysts said it was still too early to evaluate the offer
given that PDVSA had not provided the full details.
Some are concerned about potential political opposition to
using Citgo shares. Critics in the opposition, which now
controls the National Assembly, argue involving Citgo would
constitute a de facto privatization of a state asset that
requires parliamentary approval.
Del Pino said Citibank would serve as the paying agent on
the new bond. Citibank earlier this year informed bondholders
that it would not continue serving as paying agent on PDVSA's
bonds but agreed to continue operations until the company found
a new bank to fill that role.
Del Pino said PDVSA struggled to find a trustee bank to
coordinate the operation, without saying which bank would lead
the swap. Sources in August told Reuters that Credit Suisse was
in discussions with PDVSA for such an operation.
Wall St. analysts believe Maduro's government is worried a
default would leave it isolated from the global financial
(Additional reporting by Eyanir Chinea; Writing by Brian
Ellsworth; Editing by Andrew Cawthorne and Diane Craft)