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Desperate PDVSA Seeks To Swap $7 Billion In Bonds

Venezuela’s embattled state-owned oil company PDVSA is seeking to swap US$7 billion worth of bonds maturing in the next two years in order to free some much needed cash for the government. Venezuela, which holds the world’s largest oil reserves, has been struggling to stay afloat amid the continuing oil price slump and has been plunged into a deep recession by these developments.

PDVSA is the main pillar that supports the South American country’s economy and the source of its generous public spending programs that have now backfired in such a big way that a few months ago, Venezuelans stormed the border with Colombia to buy food and medicine that had become unavailable at home.

Eulogio del Pino, president of PDVSA, told media that the company would allow investors to swap their bonds maturing in 2016 and 2017 for bonds that mature in 2020. To sweeten the offer, PDVSA is backing the new bonds with shares in its U.S. downstream unit, Citgo.

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Reuters notes that investor sentiment towards Venezuela has been gloomy recently as the oil-dependent economy sways on the brink of bankruptcy, but optimism has been growing recently, as Venezuela has kept up its foreign debt payments despite its problems.

Following the announcement by Del Pino, PDVSA’s bonds jumped to a two-year high. A bond issue worth US$3 billion and maturing in April 2017 went up by 3.14 cents to 71.41 cents on the dollar yesterday afternoon, as traders started cutting their bets that Venezuela will default over the next 12 months.

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Venezuela may not default on its debt payments, but PDVSA has serious problems to deal with in order to survive. The company has been mismanaged for years and investments have been insufficient to maintain business as usual, which has resulted in a persistent output decline and growing expenses for crude oil imports.

Just yesterday, Reuters reported it had seen internal documents showing that the state-owned company was in for its lowest output in 14 years, thanks to the combination of bad management and little investment. It resorted to imports from BP, but has been slow to pay for the crude supplied by the international giant, risking to eventually pay an extra US$130 million on the US$231-million deal.

By Irina Slav for Oilprice.com

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