| MEXICO CITY/CARACAS
Venezuelan state oil company PDVSA is preparing a bond swap proposal to be announced shortly, sources told Reuters on Tuesday, potentially providing financial relief to a cash-strapped firm at the center of a struggling socialist.
The swap could ease the hefty $7 billion in maturity payments that PDVSA faces between now and the end of 2017.
That could help President Nicolas Maduro's government ease chronic shortages across the OPEC nation by using dollars to import food and medicine rather instead of servicing debt.
But investors may remain skeptical 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.
The operation would offer a new bond maturing in 2020 in exchange for bonds maturing in 2017, according to sources familiar with the proposal who asked not to be identified.
PDVSA is considering using shares of its U.S. refining unit, Citgo, as collateral for the new , according to the sources.
"Investors with PDVSA bonds will exchange them for a 2020 bond with more favorable returns and guaranteed by Citgo," said a government source.
The operation would include the $3 billion PDVSA 2017 bond that matures in April as well as the PDVSA 2017N bond, which must make a $2 billion amortization in November and another $2 billion payment at the end of 2017.
PDVSA did not immediately respond to requests for comment.
Sources in August told Reuters that Credit Suisse was in discussions with PDVSA to carry out a bond swap.
Government officials and PDVSA leaders have repeatedly insisted that any operation would be voluntary and have ruled out forced restructuring that would require bondholders to cut the value of their holdings.
The success of the operation will, however, depend on participation of bondholders.
Investors across the board say they have 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.