As anticipated, Venezuela’s PDVSA has announced a new bond issue, for $3bn, to be sold to the country’s central bank. The 2035 bonds will come with a 9.75% coupon, and amortize in 3 equal parts in each of the final 3 years. The state-owned oil company plans to use proceeds for general corporate purposes and social projects. The issue was expected by analysts following the government’s lifting of a debt ceiling earlier this year, ahead of increased spending ahead of elections.
Category: Venezuela
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Sovereigns Plot Debt Issuance
While some of LatAm’s larger sovereigns, including Mexico, Colombia and Peru, have addressed debt fundraising needs earlier in the year, others are looking to take advantage of what are still seen as attractive issuing conditions. Guatemala is heard eyeing the international bond market after closing a request for proposal (RFP) process last month. Last year it mandated Deutsche Bank as it looked to raise up to $500m in the international bond market, but didn’t follow through with a transaction. “In Guatemala we like to be prepared as in previous years, in case the window of opportunity is open to issue, but it doesn’t mean we will proceed with a bond issuance,” says a finance ministry spokesperson, declining to provide further details. Guatemala was last in the dollar market in 2004 when it priced a $330m 30-year at par to yield 8.125% through Citi, according to Dealogic data. Separately, Empresa Nacional de Autopista (ENA), a corporation wholly owned by the Republic of Panama, is planning a toll road securitization similar in structure to last year’s Corredor Sur transaction, as it seeks to help fund the purchase of Panama’s Corredor Norte tollroad from operator PYCSA. HSBC and Global Bank are set to manage, as they did the first deal. Panamanian officials said last year that the government sought to buy a majority stake in the troubled toll road in a transaction of around $650m. The bond size is expected to be larger than that amount, and will be issued through one of ENA’s subsidiaries. Last year’s $395m 8 and 14-year issuance was divided into international and domestic portions, each pricing at par to yield 5.75%. Proceeds were used to refinance existing bonds that had financed the Corredor Sur road. Also, Venezuela may be considering a new sale as soon as this week. “There is clear urgency to feed USD locally, and this week is when everyone is back and it’s a more active market to tap the window,” says Siobhan Morden, managing director and head of LatAm strateg
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Vene Outlook Negative: Fitch
Fitch has changed the outlook on Venezuela’s B+ rating to negative from stable, it says, based on a weakening policy framework. The agency sees increased vulnerability to commodity price shocks and deterioration in fiscal and external credit metrics as well as rising political uncertainty related to the 2012 electoral cycle. The main issues are “an exchange rate regime that leads to macroeconomic distortions and rising foreign currency indebtedness, a markedly expansionary fiscal policy and the transfer of the country’s oil windfall to opaque off-budget funds have weakened Venezuela’s external and fiscal credit metrics as well as increased its dependence on high oil prices,” Fitch says. The sovereign’s external liquidity and the sovereign’s net external position have deteriorated vis-a-vis peers in the “B” category and oil exporters in spite of large current account surpluses in recent years.
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Market Awaits Venezuela’s Delayed Debt Issuance
Venezuela’s delayed foreign debt issuance this year has left many in the market expecting a large bulk sale sometime before the October presidential elections. Barclays capital expects the country to issue dollar-denominated instruments sometime during the second quarter, especially now that President Hugo Chavez issued a public decree eliminating the government debt ceiling for the year. “We see increasing pressures to issue in the coming months, particularly from the exchange market and after this reform, the barriers that could have limited the government to issue have been eliminated,” the bank says. Prior to the change in the finance law, Venezuela had a debt ceiling that limited the country’s issuance this year to a further at least $12bn, at least $5.5bn of that in dollar-denominated debt. At this point Chavez has plenty of money to cover state spending plans but an appreciating dollar in the parallel market is pressuring the government to issue dollar-denominated IOUs. The unofficial exchange rate has lately reached VEB9 per dollar, up from an average of VEB5 per dollar last year, by Barclays’ estimates. The sovereign has financed almost $8bn in Bolivar-denominated debt issued locally year to date, a speed of issuance that could cause the sovereign to run into the congress-approved debt limit for the year sometime soon. Dollar-denominated debt issuance by the state controlled oil company PdVSA, however, is not subject to that lawmaker dictated limit and Barclays analysts expect the oil company to play a part in meeting the state’s dollar-debt issuance plans this year.
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PdVSA Settles Nationalizations with Americans
Venezuela’s PdVSA has agreed to pay US companies Williams and Exterran for the gas compression and injection assets they lost to a Venezuelan nationalization campaign in 2009, the companies say. So far the government-owned oil company has paid a combined $121.6m to both companies as an initial payment for the assets at the WilPro El Furrial and WilPro PIGAPII, two natural gas ventures in the Andean country. An additional $239.8m will be paid to the two companies in several installments over the coming years up until 2016, according to the companies. At the time of the asset takeover, Williams held a 66.66% stake in El Furrial and a 70% stake in PIGAP II, with Exterran holding the remaining stake in these ventures. Exterran has received an initial payment of $37.6m for its participation in these ventures with a remaining $74.8m to be paid in the next 4 years. Williams in turn has received an $84m initial payment with $165m to be paid gradually until 2016. Williams has also received an additional $63m for its stake in Accroven, a venture that includes natural gas liquids extraction and feractionation plants, as well as storage and refrigeration facilities. Officials at Exterran declined to offer additional details of the compensation terms and how the money paid compares to the value of the assets lost. An investor relations officer at Williams could not immediately comment on the deal. PdVSA officials could not be reached for comment. As per the agreement with PdVSA, Williams and Exterran have suspended their arbitration against Venezuela pending the final compensation settlement. Over the past 6 months, Venezuela has sought to settle a number of outstanding compensation claims with companies that lost assets during the nationalization drive led by the administration of President Hugo Chavez.
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CAF Lands HKD Debut
Regional development bank CAF has raised HKD400m ($51m) through its first-ever bond sale denominated in Hong Kong dollars. The Venezuela-based lender priced the 2022 bond at par with a 4.03% coupon. “We achieved a funding level substantially lower than our USD secondary markets and this deal represents the longest bond ever in the Hong Kong dollar bond market by a Latin America-based investor,” Gabriel Felpeto, the bank’s director of finance and capital markets, tells LatinFinance. HSBC managed the transaction. The deal follows reverse inquiry from Asian investors and an earlier November 2011 non-deal roadshow in Hong Kong, Taiwan, Singapore and Malaysia. CAF tapped the Swiss franc market in its last transaction in February with a CHF125m ($136m) 2-year priced at par to yield 3-month CHF Libor+125bp. A USD bond is likely in the cards this year, and the bank has said it is open to other cross-border trades, including Australian dollars.
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US E&P Co Plans Venezuela Divest
Harvest Natural Resources (HNR), a Houston-based independent oil company, is aiming to sell off its 34% stake in the Petrodelta oil project in Venezuela. The company has already started talks with a potential “third party” to sell off its share in the venture in which it is partnered with state-owned Petroleos de Venezuela, PdVSA, the company says. A spokeswoman for Harvest declined to offer additional details of the ongoing process. Officials at PdVSA could not immediately be reached for comment. HNR has said that it began negotiations for the assets on March 5, but noted that there is no guarantee the talks will result in a final sale. As of end 2011, the Petrodelta venture controls roughly 194m barrels of oil in 3P reserves, a combination of proved, probable and possible reserves held underground, a 1% decline from 2010, following HNR’s reserve review.
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Venezuela Sells Oil Stake to China’s Citic
PDVSA has agreed to sell a 10% stake in the Petropiar heavy oil upgrading project to Citic Group, China’s state-controlled investment company. The Venezuelan state-owned oil company does not disclose the value. The deal gives Citic an entry into one of four heavy crude upgrading ventures located along the oil-rich Orinoco river basin. Currently, Petropiar, formerly known as Ameriven, is 70% owned by PDVSA, with the US’s Chevron holding the remaining 30%. Officials at PDVSA and Citic could not immediately be reached for additional details about the agreement. During the summer of 2007, Venezuela nationalized the 40% stake that US major ConocoPhillips held in the venture, a move which resulted in PDVSA’s current 70% share. Under the deal signed with Citic, the Venezuelan company will offer the 10% stake from its own participation in the venture, leaving PDVSA with 60%, Citic with 10% and Chevron with its current 30% stake. Allowing the Chinese into the country’s most prized oil ventures comes as the country has become increasingly reliant on financing from China over the past few years. The deal comes after Venezuela signed a $10bn financing agreement with the Chinese government to support oil projects.
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Chavez Signals Mixed for Assets: Analysts
Admission that Venezuelan President Hugo Chavez’s heath has worsened and that he will undergo another surgery represents a marked change in the government’s communication strategy ahead of this year’s elections, though it is unclear how this will affect the results. While analysts say there are signs a regime change scenario may accelerate, whether it is orderly one is unclear. “While we expect Venezuelan bonds to be well supported in the short term due to these new conditions, we fear about a disorderly transition in the country in case of President Chavez’s absence from office,” Nomura says in a report. There is no clear Chavista replacement candidate, and it is not clear how the military might react if the opposition were to gain power, the bank says. Barclays sees Nicholas Maduro as a replacement if Chavez can’t campaign, but notes he trails opposition candidate Henrique Capriles in the polls. “The increased possibility of a democratic transition should be supportive for Venezuelan assets and, even if uncertainty could create some volatility, we would expect the transition effect to prevail,” Barclays says, adding that its base case scenario remains a peaceful and orderly transition. The shop recommends increasing duration in Venezuela credits, noting it prefers PDVSA 2022 bonds.
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Cathedral Energy Sells Venezuela Assets to PDVSA JV
Canada’s Cathedral Energy Services has struck a joint venture agreement with PDVSA, and plans to sell and lease a number of its own assets to the newly formed Vencana Servicios Petroleros venture. The JV is to be 40% owned by Cathedral, with the rest controlled by PDVSA, Cathedral says. Under the deal, Cathedral will sell its operations in the Venezuelan city of Maturin to the new venture, including buildings and various types of equipment, and will also lease Vencana its measurement-while-drilling equipment. Officials at Cathedral and PDVSA could not immediately be reached for comment. Payment for Cathedral’s assets will be 60% in cash and will come from PDVSA, while the remaining payment will be taken as Cathedral’s contribution to the new venture in exchange for its 40% participation. The company notes that PDVSA will have several payment milestones but it offered no details of dates or amounts. The Vencana venture is expected to devote its efforts to increasing directional drilling.