Siobhan Morden, the head of Latin American fixed-income strategy at Nomura Holdings Inc., estimates that PDVSA would have to offer around $1.8 for every $1 of the April 2017 bonds it refinances because investors who think the notes will get paid will want to be compensated for the potential 35 percent price increase over the next nine months.

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Venezuela Bond-Swap Optimism Ignores Just How Costly Deal May Be 
2016-07-28 <http://airmail.calendar/2016-07-28%2012:00:00%20CEST> 01:00:00.0 GMT 


By Sebastian Boyd 
(Bloomberg) -- Venezuela’s cash-strapped oil company is 
fueling speculation it may strike a deal to get some breathing 
room on $8.1 billion of debt. But the move may ultimately prove 
costly while doing little to bolster the company’s long-term 
financial health. 
Oil Minister Eulogio Del Pino, who is also president of 
Petroleos de Venezuela SA, said the company is in advanced talks 
to refinance debt due in the next 18 months, according to local 
media reports on Wednesday <http://airmail.calendar/2016-08-03%2012:00:00%20CEST>. The news caused its benchmark bonds 
due in November 2017 to jump 3.4 percent. 
But such a deal means PDVSA, as the company is known, would 
need to offer bondholders securities that boost the net present 
value of their investment so that move isn’t deemed a default. 
That means paying a huge premium to persuade investors to swap 
their notes. 
Based on the 35-cent price of PDVSA’s debt due in 2024, the 
company would have to sell sell almost $17 billion of bonds just 
to raise the $5.9 billion needed to pay the current market value 
on bonds maturing in 2016 and 2017. That would cause its total 
debt to soar by $11 billion -- twice the net income the company 
generated last year. The increased debt load would also come at 
a time when Venezuela’s economy is reeling from a plunge in oil 
prices, soaring inflation and increasing political and social 
unrest. 
“It would be quite expensive and at the end of the day it 
wouldn’t solve the problem,” said Michael Ganske, head of 
emerging markets at Axa Investment Managers in London. “It’s 
just moving the maturity because in the short term it is very 
difficult to service the debt. They’re kicking it down the road. 
It’s still not sustainable, the economy and society are in such 
bad shape that the economy is literally imploding.” 
Del Pino said Tuesday <http://airmail.calendar/2016-08-02%2012:00:00%20CEST> he plans to announce a swap “at the 
appropriate time,” according to Petroguia, a Caracas-based 
website. 
A spokesman for Del Pino said he couldn’t confirm 
Petroguia’s information on the swap offer, and said he would 
contact the minister on the matter. 
Bankers at Rothschild & Co. last week held a conference 
call with investors of PDVSA debt to discuss a plan to swap 
bonds due in October this year as well as the 2017 debt for a 
basket of debt due in 2024 and beyond, according to people with 
knowledge of the matter. 
PDVSA has $4.4 billion of dollar-debt payments still to 
make this year and $7.5 billion next year, according to data 
compiled by Bloomberg. With earnings before items of $9.3 
billion in 2015, the company is anxious to push some of that 
debt burden into the future, at which point the price of oil may 
have risen enough that it can make payments without difficulty. 
“This is one of the ways in which a credit event in 2016 
can be avoided, and it puts the possibility of surviving 2017 on 
the table,” said Daniel Urdaneta, a strategist at Knossos Asset 
Management in Caracas. It’s “not a certainty though.” 
Siobhan Morden, the head of Latin American fixed-income 
strategy at Nomura Holdings Inc., estimates that PDVSA would 
have to offer around $1.8 for every $1 of the April 2017 bonds 
it refinances because investors who think the notes will get 
paid will want to be compensated for the potential 35 percent 
price increase over the next nine months. 
“The debt stock will grow no matter what,” she said from 
New York. 
The bond-swap speculation may itself make the deal more 
costly. 
“If you want to tender, the bonds will go up and it will 
just get more expensive for PDVSA to do,” Ganske said.
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