Subject: (BN) Venezuela Seeking to Postpone Maturities Shows Debt Under Stress

Venezuela Seeking to Postpone Maturities Shows Debt Under Stress

By Sebastian Boyd

• PDVSA may seek creditors' help to `better distribute' debt
• Barclays, Scotiabank see little incentive to agree to plan

(Bloomberg) --Venezuela, the world’s least creditworthy nation in the bond market, is considering taking a first step toward easing its debt problem by asking investors to help it refinance bonds of the state-owned oil company.
Eulogio del Pino, the chief executive officer of Petroleos de Venezuela, or PDVSA, told Venezuela’s El Mundo newspaper last week he wants to reschedule bonds due in 2016 and 2017 to “better distribute” maturities.
While PDVSA has time on its side -- it doesn’t have any dollar-denominated bonds that mature until October, giving it almost a year to negotiate -- it won’t be easy to persuade creditors to go along with the plan, according to Barclays Plc, Scotiabank and Goldman Sachs Group Inc. Investors demand more to own Venezuelan bonds than those of any other country as the government burns through its foreign-currency reserves, inflation runs about 85 percent and the International Monetary Fund forecasts the economy will shrink 10 percent this year.
“These transactions aren’t easy to manage, particularly in a situation like Venezuela where they’re facing very high financing costs,” said Mauro Roca, an economist at Goldman Sachs in New York. “It may be difficult to get everyone to agree.”
Six months ago, investors demanded more to own Ukraine’s bonds than any other developing nation. At 40.9 percent, Ukraine’s average yield was almost double Venezuela’s 20.9 percent. Venezuela has since taken that title, with its bonds yielding an average of 27 percent.
Ukraine reached a deal with creditors last month on its $18 billion debt restructuring, swapping notes for longer-maturity bonds in exchange for offering investors higher interest payments. Standard & Poor’s later lifted the nation’s credit rating to B-, six levels below investment grade, from SD, or selective default.
Its bonds returned 47 percent in the first nine months of this year, the most among developing sovereigns. Venezuela’s bonds have returned 14.4 percent this year, PDVSA’s 27 percent.
Del Pino told El Mundo that PDVSA’s track record in honoring all of its debt obligations could help it reach a deal. The company paid off $4.3 billion of principal and interest in recent weeks.
“A company that has met its commitments as we have, I think it is in a position to speak with key bondholders whom we have identified to propose a change in the short-term maturity profile,” del Pino said in an article published Friday.
PDVSA officials didn’t respond to e-mailed requests for comment.
The fact that del Pino said the program would be voluntary and he reiterated the company’s willingness to pay in any scenario is positive, Barclays economistsAlejandro Grisanti and Alejandro Arreaza said in a note to clients on Monday.
“Del Pino also highlighted that he wanted to improve PDVSA’s credit ratings,” they said. “Hence, we think it would not pursue the transaction if rating agencies see it as a distressed exchange.”
Rescheduling the bonds would buy the company more time for oil prices to rebound. The average price of Venezuelan oil, which accounts for 95 percent of exports, has averaged $46.80 a barrel this year, compared with an average of $92.97 a barrel in the five years through the end of 2014. As government revenue plummeted, Venezuela has depleted its cash, sending reserves to near a 12-year low of $15 billion on Nov. 6. Scotiabank estimates the nation may run out of reserves by April.
Whether investors agree to refinance PDVSA debt may depend on whether the company can convince them it faces a default without a deal.
“You’d be unlikely to look at it if you weren’t distressed,” said Michael Ganske, who helps oversee $4.5 billion of debt, including Venezuelan bonds, as head of emerging markets at Rogge Global Partners in London. “The question is how receptive investors are. It’s a game-theory situation.”
Another obstacle to extending maturities is the government’s policy of using PDVSA to further its social agenda. In addition to subsidizing the world’s cheapest gasoline, PDVSA in recent years has been forced to get involved in food imports and building social housing.
“In the absence of policy changes that improve the sustainability” of the debt, Barclays’s Grisanti and Arreaza said, “markets will have little incentive to participate in a transaction.”
(An earlier version of this story was corrected to eliminate a comparison with Ukraine’s debt restructuring.)
--With assistance from Rita Nazareth in New York.