PdV extends bond swap deadline

OREANDA-NEWS. October 10, 2016. Venezuelan state-owned PdV extended a deadline for a critical bond swap offer to try to reach a minimum threshold of participation.

The distressed oil company is seeking to exchange up to \\$5.325bn of two maturing PdV 2017 bonds totaling a combined \\$7.1bn of outstanding principal for a new PdV 2020 bond.

PdV said late yesterday that positive responses received by yesterday's 5pm deadline were "substantially" below a 50pc target stipulated in the company's 16 September prospectus.

PdV did not disclose how many offers it had received. But "substantially less than 50pc of the aggregate principal amount of the Existing Notes have been tendered," PdV said in a statement that set a new deadline of 5pm local time on 12 October.

The new PdV 2020 bond, with an 8.5pc coupon, would make four annual principal payments, collateralized with 50.1pc of Citgo Holding's outstanding equity including the Delaware-registered company's refineries in Louisiana and Texas.

"The consummation of the Exchange Offers is conditioned upon, among other things, the valid tender of at least 50pc of the aggregate principal amount of the Existing Notes," the PdV statement said.

PdV's prospectus stipulates that it can call off the bond swap or extend the deadline for accepting offers if the participation rate falls short of the 50pc threshold of the aggregate value of the offering.

Energy minister and PdV chief executive Eulogio Del Pino has been touting the voluntary bond swap offering as a "great deal" for investors. But credit rating agencies such as Moody's and S&P have cautioned that PdV's offer is tantamount to a default forced upon bondholders.

Ricardo Hausmann, current director of the Center for Economic Development at the Harvard University's John F. Kennedy School of Government and former Venezuelan planning minister, described the transaction as "the ultimate kicking the can down the road debt restructuring."

PdV's bond swap proposal is "equivalent to borrowing at 28pc interest at today's prices for the exchangeable bonds," Hausmann said.

PdV would "save" \\$1.9bn of debt principal payments in 2016 and a further \\$2.4bn in 2017 if it achieves its stated goal of swapping over \\$5.325bn of the maturing PdV 2017 bonds for the new PdV 2020 bond it is offering investors. But PdV's net cash flow position from 2018-20 will worsen by up to a further \\$2.2bn because it will have to "cough up an additional \\$2.04bn of principal in 2018, \\$1.9bn in 2019 and \\$2.56bn in 2020 for a total of \\$6.5bn of principal payments from 2018-20, Hausmann said.

PdV "does not have two-year investment projects with a 28pc annual rate of return," Hausmann said. "The company is buying time, but it is buying very little time at a price it cannot afford."

PdV?s oil production has declined by around 300,000 b/d over the past year to a current 2.3mn b/d, according to official data which is widely seen as inflated.