Venezuela’s national oil company PDVSA has readied to launch a $7bn bond swap in a move that would alleviate mounting financial pressure on the group as it stares down multibillion-dollar bond payments over the next 14 months, the company’s president Eulogio del Pino said on Tuesday.
The swap would cover PDVSA notes due in October 2016, April 2017 and November 2017, allowing investors to trade those notes in for new bonds that mature in 2020. The swap would be backed by shares of the group’s US-based subsidiary Citgo Petroleum to bolster investor interest. According to Mr del Pino, some rating agencies have evaluated the swap “as a positive offer made to bondholders”.
The oil company’s bonds surged after the announcement, with the $3bn of debt maturing in April 2017 rising to its highest level in more than two years. The yield on the April-maturing bonds tumbled more than 15 percentage points to 64 per cent as the paper rallied to 75 cents on the dollar. Yields fall as bond prices rise.
PDVSA debt maturing in November 2017 climbed 4.4 cents on the dollar to trade at roughly 79 cents on the dollar.
Opec member Venezuela sits on the world’s largest crude reserves, but its economy has been crippled by mismanagement, low oil prices and sliding crude production. The debt deferment will ease the country’s upcoming debt payment burden, as foreign currency reserves plummeted to $12bn this month from $16bn at the start of the year.
Mr del Pino said on local television that while the socialist government was lobbying with other oil-producing countries to buoy crude prices, “this operation greatly relieves us of payments due in 2016 and 2017, when debt payments would have peaked, so we are kicking them forward”.
Russ Dallen, a managing partner at investment bank Caracas Capital, said between next month and the end of 2017 PDVSA and Venezuela faced combined debt payments of about $15bn.
“PDVSA has to pay almost 80 per cent of that,” Mr Dallen added. “They are in a bad situation [and] they don’t have a lot of choices. They are not doing this for the bondholders. They are doing it to save their own skin.”
The move may free up cash for Nicolás Maduro’s embattled government to import more food and medicine amid ravaging shortages. The economic crisis, the worst in living memory, has cornered Mr Maduro, with intensifying calls from angry Venezuelans seeking his departure as president.
As inflation surged and the economy contracted, Venezuelan debt slid into distressed levels. Economists have called on the government to ease currency and price controls. Mr Maduro has not relented and officials have insisted the country will continue to meet debt payments.
“Authorities continued to reaffirm their commitment to honouring the country’s external debt, and we see few indications that this commitment has changed,” Francisco Rodríguez, the Venezuelan chief economist at Torino Capital, wrote this week after a trip to Caracas.
He warned that similar transactions could follow: “Their strategy is to seek to change the debt profile through voluntary swaps of both the PDVSA and the sovereign.”