CARACAS, Sept 22 (Reuters) - Venezuela’s government would benefit from state oil company PDVSA’s proposed $7 billion debt swap through improved cash flow and fewer difficulties in obtaining external financing, ratings agency Moody’s Investor Service said on Thursday.
PDVSA, struggling under low oil prices and an economic crisis at home, this month offered investors the chance to exchange bonds maturing in 2017 for a new 2020 bond backed by shares in its U.S. subsidiary Citgo Holding Inc.
“From a sovereign credit standpoint, PDVSA’s exchange is credit positive for Venezuela ... because at a time of severe external liquidity stress, it frees up hard currency that the government can use for other payments, including its own debt service,” Moody’s analysts wrote.
Venezuela and PDVSA are frequently seen as similar credit risks because of the close relationship between PDVSA’s management and the ruling Socialist Party. The OPEC nation depends on oil for almost all of its foreign currency revenue.
PDVSA’s bonds gained across the board on Thursday, led by the PDVSA 2035 that was up 1.200 points to a bid price of 49.550. Venezuela’s sovereign bonds were also up, with the 2018N bond up 2.500 points to bid 64.500.
Wall Street initially panned PDVSA’s swap offer as insufficiently attractive. But investors have in recent days warmed to the idea that the Citgo guarantee would make the new bond safer than PDVSA’s other outstanding issues.
The company says it will continue paying down its other bonds even if investors turn down the swap, which requires 50 percent bondholder participation to take effect.
Ratings agency S&P this week described the proposed operation as “tantamount to default” if completed. Fitch Ratings said it expected to rate the new 2020 bond “CCC/RR4(exp)”, which it said “suggests a real possibility of default.”
PDVSA President Eulogio Del Pino responded by describing ratings agencies as “professional speculators” who were contributing to a negative perception of the swap.
The company borrowed heavily during the oil boom and now faces falling production and an unraveling socialist economy whose currency controls and hefty subsidies have taken a toll on the oil industry.
President Nicolas Maduro says the country’s problems are the result of an “economic war” led by political adversaries to weaken his government. (Reporting by Brian Ellsworth; Editing by Meredith Mazzilli)