(Recasts with PDVSA confirmation)
By Ana Isabel Martinez and Corina Pons
MEXICO CITY/CARACAS, Sept 13 (Reuters) - Venezuela's state oil company PDVSA on Tuesday proposed a bond swap for $7 billion in outstanding debt to lower the financial burden on the cash-strapped company, which is at the center of the OPEC nation's unraveling socialist economy.
Reducing the hefty maturity payments due by the end of 2017 could help President Nicolas Maduro's government ease chronic shortages by making more dollars available to import goods ranging from rice to cancer medicine.
But investors may remain skeptical that the proposal does not address underlying problems with Venezuela's state-led socialist economy, such as dysfunctional state-run companies, rigid price controls and corruption-riddled currency controls.
"We had a peak of debt payments and we're kicking them forward," said PDVSA President Eulogio Del Pino in comments broadcast on state television. "We are seeking financial relief from the payment of these bonds."
Venezuela is reeling under low oil prices and a steady decay of its economic system. Inflation is in the triple digits, the economy is in a deep recession, and citizens routinely spend hours in line search of basic staple products.
Investors for months fretted that Venezuela was on its way to default, but have become more optimistic in recent weeks on signs the Maduro government will continue making payments despite adverse circumstances.
The swap operation offers a new bond maturing in 2020 in exchange for bonds coming due before 2017, Del Pino said. It will include amortization payments in 2017, 2018, 2019 and 2020.
He added that the bond will be backed by shares in PDVSA's refining unit Citgo, and that ratings agencies had given a "positive" evaluation of the new bond.
PDVSA's $1 billion 2016 bond comes due in October. The company also faces the $3 billion maturity of the PDVSA 2017 bond in April and two amortization payments of $2 billion each on the PDVSA 2017N bond that must be made at the end of this year and the end of next year.
The success of the operation will depend on participation of bondholders.
PDVSA's bonds were up across the board, with the PDVSA 2017 up 3.50 points to a bid price of 71.50 and the 2017N bond up 1.55 points to 76.55.
Investors consulted by Reuters in recent weeks said they had no formal conversations with PDVSA regarding the operation, which is a common way of gauging market conditions and ensuring bondholders are aware the operation is on its way.
Analysts said it was still too early to evaluate the offer given that PDVSA had not provided the full details.
Some are concerned about potential political opposition to using Citgo shares. Critics in the opposition, which now controls the National Assembly, argue involving Citgo would constitute a de facto privatization of a state asset that requires parliamentary approval.
Del Pino said Citibank would serve as the paying agent on the new bond. Citibank earlier this year informed bondholders that it would not continue serving as paying agent on PDVSA's bonds but agreed to continue operations until the company found a new bank to fill that role.
Del Pino said PDVSA struggled to find a trustee bank to coordinate the operation, without saying which bank would lead the swap. Sources in August told Reuters that Credit Suisse was in discussions with PDVSA for such an operation.
Wall St. analysts believe Maduro's government is worried a default would leave it isolated from the global financial markets. (Additional reporting by Eyanir Chinea; Writing by Brian Ellsworth; Editing by Andrew Cawthorne and Diane Craft)