Investors holding $2.8bn of debt issued by Petróleos de Venezuela have agreed to swap their holdings for $3.4bn of new bonds maturing in 2020 in a deal that falls far short of the state-backed oil company’s target but provides some much-needed relief as it battles to avoid default.
PDVSA said on Monday that 39.4 per cent of the $7.1bn worth of bonds that mature in April and November 2017 had been tendered in the closely watched swap. That was short of 50 per cent threshold set by the company.
It had sought to exchange as much as $5.3bn of the debt as Venezuela’s foreign reserves dwindle and the country’s recession deepens. The swap will relieve some of the $15bn of debt payments Venezuela and PDVSA had faced through the end of next year.
“It is certainly supportive for the company over the very near term but it calls into question [its] longer term viability,” said Sean Newman, a portfolio manager at Invesco, who estimated the deal would save PDVSA $2bn through 2017. “It definitely helps alleviate default concerns.”
Russ Dallen of Caracas Capital agreed the swap would provide short-term relief. “The bottom line is that there’s $1bn they don’t have to come up with on November 2 [when the next payment on the tendered bonds is due],” he said.
More than two-thirds of the investors in the April 2017 notes decided against participating in the transaction, preferring instead to get paid out in full when the bonds come due. PDVSA found more appetite among the November 2017 note holders, with 45.3 per cent of the $4.1bn of debt tendered.
Siobhan Morden of Nomura said that by accepting just 39 per cent participation PDVSA had done “the logical thing”.
“They needed whatever cash the market was willing to offer,” she said. “PDVSA made a lot of noise and threats but at the end of the day they have no leverage. This was credit at market terms.”
The bonds climbed after the swap was announced on Monday, with the debt maturing in November 2017 rising to 85 cents on the dollar from 82.75 cents on Friday, according to Interactive Data.
Ms Morden said the swap would provide cash flow relief of just under $2bn this year and next. But such relief would be shortlived, as the swap would increase payments coming due in 2018, 2019 and 2020 by a total of nearly $3bn.
“It’s not pushing things out for that long,” she said. “They are just continuing to muddle through. But liquidity conditions are deteriorating, oil production is deteriorating and their foreign exchange reserves will continue to deteriorate. That’s the problem. They have no contingency plan.”
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