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Categorized | Capital Markets

Oil group PDVSA sweetens debt swap offer


Posted on September 28, 2016

Vehicles sit at fuel pumps at a Petroleos de Venezuela SA (PDVSA) gas station in Caracas, Venezuela, on Wednesday, Dec. 30, 2015. The U.S. accused two men of taking part in a $1 billion bribery scheme to secure contracts with Venezuela's state oil company, Petroleos de Venezuela SA (PDVSA) and linked one of the duo to a former head of Venezuelan military intelligence wanted for alleged cocaine trafficking. Photographer: Carlos Becerra/Bloomberg©Bloomberg

Bonds in Petróleos de Venezuela advanced to their highest levels since crude last traded above $100 a barrel after the heavily indebted state-owned oil group sweetened the terms it offered to creditors in a closely watched debt exchange.

The new proposal, which would swap $5.3bn of bonds maturing next year for new debt due in 2020, recast the transaction for investors who had shown little interest in an earlier deal.

    Several money managers are now considering participating, as the Venezuelan oil group faces
    multibillion-dollar payments.

    PDVSA said it would pay owners of its bonds maturing in November 2017 as much as 1.22 times their principal if they agree to the exchange within the next nine days. Holders of PDVSA bonds due in April 2017 would receive as much as 1.17 times their principal, according to the latest proposal. PDVSA had previously offered a one-for-one swap.

    The debt maturing next November jumped to 82.5 cents on the dollar from 79 cents early on Monday, while the April bonds rose above 80 cents. It was the highest they have traded since September 2014.

    “Under the original terms the offer had generated virtually no interest,” said Fernando Losada, an economist with AllianceBernstein. “The revised terms make it more attractive, and several large international banks are now recommending to tender the old bonds for the new securities.”

    Venezuela and PDVSA face debt payments of roughly $15bn through the end of 2017. The Latin American sovereign, which sits on the world’s largest proven oil reserves, has been battered by the drop in crude prices and chronic mismanagement. The country’s foreign currency reserves have tumbled below $12bn this month from more than $16bn in January.

    Investors have struggled to value the deal proposed by PDVSA, which includes the use of its US subsidiary Citgo Petroleum as collateral. Money managers and analysts have put wide-ranging estimates on the unit’s worth as it pertains to the bond swap, with valuations as high as $10bn and as low as zero. Francisco Velasco, an analyst with Exotix Partners, noted that many investors were likely to “assign little value” to Citgo.

    PDVSA, which is being advised by Credit Suisse, said it would tender for fewer bonds so there would be fewer creditors to fight over Citgo in the event of a default. Previously the group offered to swap as much as $7.1bn of its outstanding obligations.

    Sean Newman, a portfolio manager with Invesco, said he needed more time to evaluate if he would participate in the deal, but that the revised offer was more compelling “to any holder sitting on the fence”. T Rowe Price and Allianz are also large owners of the debt.

    “They will scrape and scrounge to pay these bonds when they mature,” Mr Newman said. “Without dollars [Venezuela] can’t import anything. Conditions on the ground are not great and the last thing the government wants to do is lose access to dollars through a default that they could avoid.”

    eric.platt@ft.com

    Twitter: @ericgplatt