S&P Default Warning Endangers Venezuela's $13 Billion Bond Plan
- PDVSA CEO said last month he wants to push out maturities
- Oil producer's bonds have lost 5.8% in the past week
That’s because Standard & Poor’s said Tuesday it might consider such a move a default if PDVSA offers new bonds that delay repayment or if there’s a realistic chance the company would miss the payments without the swap. The warning comes four weeks after PDVSA Chief Executive Officer Eulogio del Pino told El Mundo newspaper he wants to reschedule notes due in 2016 and 2017 to “better distribute” maturities.
S&P’s warning may derail a plan that could benefit PDVSA and its bondholders at a time when a slump in oil prices has reduced the company’s revenue and Venezuela’s foreign reserves, said Marco Ruijer, who oversees about $7 billion of emerging-market debt at NN Investment in The Hague. The prospect of being classified in default would probably deter PDVSA from going ahead with an exchange, according to Barclays Plc.
“Venezuela’s argument would be that in 2018 or 2019 they have less maturities and the oil price may be higher,” Ruijer said. “It makes perfect sense to try to do it and investors should think about it. Even if it’s the same price and coupon for a few years more, your bonds would be higher because there’s a greater chance of being paid.”
Officials at PDVSA and the Information Ministry didn’t respond to e-mailed requests to comment on the company’s bond plans.
S&P affirmed PDVSA’s CCC rating, which means the company’s debt is currently vulnerable to non-payment. A bond exchange by any company rated lower than B- would be considered a de facto restructuring, according to S&P’s criteria. While the rating company was aware of Del Pino’s comments, it hasn’t had conversations with PDVSA, spokesman John Piecuch said from New York.
“The most likely thing is that we would consider it a distressed exchange,” Marcela Duenas, an analyst at S&P, said from Mexico City. “We don’t have anything formal, but we wanted to comment because there’s noise in the market.”
The information currently available to the market on PDVSA’s plans doesn’t provide enough detail to know whether it would constitute a default, according to Alejandro Grisanti, an economist at Barclays.
“There are 10,000 ways of doing it so that it isn’t a default just as there are 10,000 ways of doing it so it is,” he said. “There weren’t any specifics in what Del Pino said.”
S&P’s statement also comes as PDVSA bonds sell off in the run-up to parliamentary elections Sunday. The PDVSA bonds in Bloomberg’s USD High Yield Emerging Market Corporate Bond Index have lost 5.8 percent in the past week.
“There’s a lot of uncertainty around the elections,” said Edward Glossop, an economist at Capital Economics in London.
--With assistance from Jose Orozco.
To contact the reporter on this story:
Sebastian Boyd in Santiago at sboyd9@bloomberg.net
To contact the editors responsible for this story:
Brendan Walsh at bwalsh8@bloomberg.net;
Michael Tsang at mtsang1@bloomberg.net
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