Investors are reacting tepidly to an offer from Venezuela’s state-owned oil company PDVSA to swap $7bn in bonds to reduce the company’s debt payments next year.
The company announced the details of the proposal late Friday, offering to exchange bonds coming due in April 2017 and November 2017 for fresh notes maturing in 2020. The new securities carry an 8.5% coupon and offer amortizing annual payments through 2020.
The offer would allow cash-strapped PDVSA, which is struggling with low global oil prices and a fall in production, to extend its debt maturities. Yet some fixed-income investors said the company was offering little to entice investors to take part.
“The offer doesn’t give investors sufficient incentives to accept the swap,” an investor said. “I think investors were expecting a better offer.”
As part of the offer, PDVSA said the new bonds would be backed by a 50.1% stake in PDVSA’s US-based oil refining unit Citgo. However, some investors are concerned whether the opposition-led National Assembly will approve the use of the Citgo stake as collateral. At least one prominent opposition lawmaker has publicly questioned that part of the offer.
“A cash incentive would have been better than Citgo,” the investor said.
Still, another investor said the coupon might prove to be attractive to some PDVSA bondholders. The April 2017 bond has a 5.25% coupon, while the November 2017 bond has the same 8.25% coupon included in the offer.
“Some investors may take the deal since it does offer a better coupon,” the person said. “But it is not desirable or within what many expected.”
The swap offer expires October 14, although PDVSA said it has the right to extend the deadline. According to the prospectus, D.F. King & Co. is the agent in charge of the swap, which is open to offers exceeding $150,000.
Over the weekend, Venezuela’s oil minister and the head of PDVSA, Eulogio Del Pino, said the company still planned to make its debt payments if bondholders reject the swap proposal.
“We are prepared to meet our debt obligations if the swap is unsuccessful,” he said in a tweet sent out by PDVSA.
The company said its total debt at the end of June was $37.3bn.