NEW YORK, Sept 19 (IFR) - The 2017s issued by Venezuelan oil company PDVSA were about 1.5 points weaker Monday as investors largely shunned the terms of a debt exchange targeting US$7.1bn of those securities.
The 5.25% 2017s were spotted at 72.00-73.00 after starting the day down two points at around 71.50-72.50, while the 8.5% 2017s were at 77.00-78.00 after opening at 76.50-77.50.
If successful, the long-awaited liability management operation would give the beleaguered oil exporter some relief from a wall of maturities falling due over the coming months.
And while a good chunk of the 2017s are thought to be held by compliant government entities, PDVSA will likely need to bring in a critical mass of foreigners to get past the 50% participation rate set by the company.
"The swap looks like it would be more appealing to locals than foreign investors, given the 1:1 ratio in addition to the uncertainty over the value claims on Citgo," said Sean Newman, senior portfolio manager at Invesco.
PDVSA announced Friday that for each US$1,000 in principal of existing 2017s, bondholders would receive an equal amount of new 8.5% amortizing 2020s, backed by a first-priority interest on 50.1% of capital in Citgo Holdings.
After the early bird deadline of September 29, however, holders will receive US$950 of new notes for every US$1,000 of old securities exchanged.
That initial par for par offer disappointed many market participants who said a higher ratio would be required to make the transaction NPV-positive for holders.
"It is difficult to get past the fact they are asking for 1 to 1," said Siobhan Morden, head of Latin American strategy at Nomura.
"They are starting with an NPV negative (transaction) and are looking to the Citgo stock to compensate. That is a difficult starting point."
How accounts value the Citgo pledge will likely make all the difference when holders are deciding whether to participate or not.
"People are just waiting and studying the value of the Citgo pledge," said a broker.
Credit Suisse is acting as financial advisor on the exchange offer. (Reporting by Paul Kilby; Editing by Marc Carnegie)