PdV seeks to reschedule foreign debt

OREANDA-NEWS. November 11, 2015. Venezuelan state-owned PdV is looking to reschedule its foreign debt as the company grapples with a steep drop in oil revenue because of sagging prices.

The company plans to invite foreign bondholders to voluntarily swap over \\$5.1bn of dollar-denominated bonds that mature in 2016-17 for new bonds maturing in 2018-19 or later.

Energy minister and PdV chief executive Eulogio del Pino said the company expects to reach out soon to foreign bondholders with a voluntary bond swap proposal.

"A company that meets its commitments as we have done is, I believe, in a position to speak with its principal bondholders whom we already have identified, to propose a change in short-term debt maturity profiles," del Pino said.

Swapping short-term PdV debt for longer-term debt is a "good deal for investors because it would place PdV in better conditions to grow, improve its performance and offer greater value to its investments," del Pino added.

Del Pino did not specify the PdV bonds that would be swapped, or the pricing and maturity of the new bonds that would be offered in exchange for those maturing in 2016-17.

The proposal PdV is developing jointly with the finance ministry seeks to reduce the company's debt load in 2016-17 by stretching out maturities by up to four years.

PdV will likely offer to swap its \\$1bn PdV 2016 bond maturing in October next year, and the remaining \\$4.1bn of its \\$6.15bn PdV 2017 bond that matures in November 2017, the energy ministry tells Argus.

Overall, Venezuela's central government and PdV are scheduled to pay a total of almost \\$10.5bn in 2016, with over \\$10bn more due in 2017-18, the finance ministry said.

PdV's proposed bond swap would almost halve Venezuela's currently scheduled foreign debt payments in 2016-17, strengthen the company's cash flow in both years and potentially boost its share of real capital investment in long-delayed Orinoco upstream joint ventures, the finance ministry added.

A successful voluntary swap of PdV short-term bonds maturing in 2015-16 for longer-term bonds could also set a precedent for similar operations involving up to \\$6bn of Venezuelan sovereign debt maturing from 2016-19, the finance ministry said.

It is unclear when PdV expects to formally propose a voluntary bond swap to a select group of large creditors that del Pino declined to identify. But Venezuela will continue to service its foreign debt obligations on time, the finance ministry said.

Bondholders generally are willing to take a look at voluntary bond swap proposals when the debtor has strong underlying assets, a bond trader based in the US tells Argus.

PdV's assets and potential are very significant, including almost 300bn bl of certified crude reserves, almost 200 trillion ft3 of natural gas reserves and over 9,000 metric tons of gold reserves that the company is now exclusively responsible for developing with foreign partners.

But "the question uppermost in the minds of bondholders is the price at which the new bonds would be swapped out by PdV for the old short-term bonds," the trader said.

The energy and finance ministries declined to give further details for now. PdV also declined to comment.

But local and foreign bond traders that regularly trade PdV debt tell Argus it is possible that every \\$1bn of short-term debt extended in a bond swap operation could cost PdV up to \\$2.5bn in new debt maturing in 2018-20, including principal plus interest accrued from 2016-20.

"It's a doable short-term financial strategy for PdV, but it's going to be very expensive for PdV in the medium-term if it expects to attract significant interest from existing holders of the PdV 2016 and PdV 2017 bonds," the US bond trader said.

The debt rescheduling proposal is emerging at a time when Venezuela?s international hard currency reserves have dwindled to \\$14.9bn as of 6 November, their lowest level since 2002.