September 13, 2016 / 9:52 PM / 2 years ago

PDVSA bonds outperform on debt swap announcement

NEW YORK, Sept 13 (IFR) - Short-term bonds issued by Venezuela’s PDVSA were trading up on Tuesday after the company’s president confirmed that a swap of outstanding 2017s for new 2020s was in the works.

PDVSA’s old and new 2017s were up a good 2.5-3 points on the day to trade respectively at 73-74 and 79.50-80.50, according to a buyside trader.

If successful the transaction would provide some breathing space to the state-owned company, which faces billions of dollars in bond maturities over the next year or so.

Reuters reported that the operation would include US$3bn of PDVSA bonds maturing in April 2017, and new PDVSA 2017s which have a US$2bn amortization in November and another US$2bn at the end of next year.

With no details released on the pricing of the swap, however, it remains unclear whether a sufficient number of foreign holders will freely participate in the transaction.

PDVSA is considering collateralizing the bond with shares from its US unit Citgo, Reuters reported on Tuesday.

But market participants questioned the effectiveness of the collateral as incentive given that equity pledges have been placed on a prior financing package from Citgo.

“One has to question the nature of the collateral and where it has been pledged,” said the buyside trader. “With another US$7bn of debt (collateralized with equity) there would obviously be material dilution. At this point, it hard to quantify the extent of participation from external bondholders.”

Ultimately, foreign participation is expected to come down to whether the transaction is net present value positive for investors.

“I don’t think anyone cares about the Citgo shares,” said one investor. “I would price this as a normal bond, looking at the exchange ratio and whether it is NPV positive.”

In televised comments, PDVSA President Eulogio Del Pino said the new bond had received positive evaluations by three rating agencies, Reuters reported. (Reporting By Paul Kilby, Davide Scigliuzzo; editing by Shankar Ramakrishnan)

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