(Adds investor comment, details)
By Brian Ellsworth and Corina Pons
CARACAS, Sept 26 (Reuters) - Venezuelan state oil company PDVSA on Monday sweetened the terms of a bond swap proposal that had drawn market skepticism, offering more 2020 bonds in exchange for bonds maturing in 2017, part of an effort to improve the company's cash-flow situation.
PDVSA this month offered to swap $7.1 billion in outstanding issues for a new bond, backed by its U.S. subsidiary Citgo Holding Inc, at a one-to-one ratio, which some bondholders described as unattractive.
PDVSA will now offer an additional $170 in new 2020 bonds for each $1,000 in PDVSA 2017 bonds maturing in April and $220 for each $1,000 of PDVSA 2017N bonds maturing in November 2017, if investors participate before Oct. 6, the company said in a press release.
Investors participating after that date will receive an additional $120 for each $1,000 of the April maturity and $170 for each $1,000 of the November 2017 maturity.
The operation closes on Oct. 14.
"These conditions are very favorable for the swap," said Carmelo Haddad, Director of Knossos Asset Management, a fund that invests only in Venezuelan bonds.
"The market should react very well tomorrow. This may help (PDVSA) bring in the funds that have significant holdings."
Under the new terms, PDVSA now expects to pick up only 75 percent of the total outstanding 2017 bonds, or a total of $5.325 billion, rather than the entire $7.1 billion.
Wall Street analysts estimate that PDVSA has already bought back a considerable portion of its outstanding issues.
The prices of PDVSA bonds see-sawed in the wake of the initial swap announcement, as investors struggled to understand the details of the proposal and to put a value on the guarantee.
The company is struggling under low oil prices and an unraveling socialist economic system that has led to triple-digit inflation and chronic product shortages in Venezuela.
The swap is meant to ease hefty amortization payments between now and the end of next year, improving the company's cash flow and reducing the probability of a default.
PDVSA has promised it will honor bond commitments no matter the fate of the swap, and investors broadly believe it will continue making debt payments because the government does not want to be isolated from the global financial system.
Venezuelan President Nicolas Maduro dismisses default talk as a smear campaign by adversaries to weaken the government. (Reporting by Brian Ellsworth and Corina Pons; Editing by Sandra Maler and Leslie Adler)