Venezuela Goes on Oil World Tour as Deadline for Bond Swap Looms
- Maduro, Del Pino to visit Saudi Arabia, Iran, Azerbaijan
- Bondholders have until 5 p.m. New York time to swap bonds
Venezuelan President Nicolas Maduro and his energy minister Eulogio del Pino are going on a tour of the world’s crude producers to drum up support for a deal to limit output just as a critical deadline for investors to swap bonds in the state oil company nears.
Petroleos de Venezuela SA, where Del Pino is president, is urging investors to accept a bond swap for longer-dated notes by a deadline later Friday amid ongoing default concerns. Maduro departs his country the same day a bid to oust him from the presidency was definitively quashed.
The visits will seek to “consolidate the stabilization of the oil market in a bid to recover realistic and fair prices,” Maduro said in a statement on Thursday. The tour starts with non-OPEC member Azerbaijan Friday and will include member-states Qatar, Saudi Arabia and Iran ahead of a formal meeting of the group next month that will seek finalize a deal to limit production to boost prices.
OPEC -- which pumps about 40 percent of the world’s crude -- agreed on Sept. 28 in Algiers to limit production to a range of 32.5 to 33 million barrels a day in a bid to reduce a supply glut that sent prices to a record low this year. The organization pumped 33.75 million barrels in September, according to a Bloomberg News survey.
Hardest Hit
While low oil prices have hurt the finances of all OPEC nations, Venezuela has been among the hardest hit as it depends on the commodity for 95 percent of its export revenue. The country has a break-even oil price of $121.06 a barrel, according to RBC Capital Markets, meaning that the government is unable to balance its budget with prices below that level. Brent futures, the global benchmark, traded at $51.75 a barrel as of 10:42 a.m. New York time.
Looming Deadline
PDVSA has been trying to persuade bondholders to exchange as much as $5.325 billion of outstanding notes maturing in 2017 for securities that are due in 2020. The deadline for the swap was extended three times until 5 p.m. Friday New York time.
A default by PDVSA wouldn’t just hurt bondholders. It could also lead to troublefor refineries on the U.S. Gulf coast since Venezuela is the main supplier of foreign oil to the region. In such a scenario, creditors may try to seize payments made in the U.S., according to Fitch ratings.
The fact that Del Pino has joined the trip is probably good for investors.
“I think if Del Pino feels comfortable to leave the country on an oil tour then logically he probably doesn’t plan on canceling the exchange or defaulting on the bonds,” Siobhan Morden, the head of Latin American fixed-income strategy at Nomura Holdings Inc., said by e-mail. “I think that means that the deal is still alive.”
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