October 18, 2016 / 2:32 PM / 2 years ago

Venezuela debt falls after PDVSA extends swap again

NEW YORK, Oct 18 (IFR) - Venezuela and PDVSA bonds were under pressure on Tuesday morning following yet another deadline extension for the state-owned oil company’s US$5.325bn debt swap.

PDVSA announced late Monday that it would now give investors until October 21 to exchange its 2017 bonds for a new 8.5% 2020 - the third such extension in a matter of weeks.

The move spilled over to the sovereign’s curve, where the 2022s were down as much as three points at 56.70, while the PDVSA 5.25% 2017s and 8.50% 2017s were down over half a point at 79.00-80.00 and 85.00-86.00.

The repeated delays in the liability management transaction have left markets concerned about the company’s ability to meet its obligations.

In a press release, PDVSA said that substantially less than 50% of the outstanding bonds had been tendered, and warned an unsuccessful exchange would make it difficult to pay its debt.

“It is striking that they are not altering the terms to promote greater participation,” said Alejo Czerwonko, an emerging markets at UBS Wealth Management.

“They have chosen to use a stick over a carrot.”

But Siobhan Morden, head of LatAm fixed-income strategy at Nomura, said it was too late to sweeten the terms as the exchange has to close before the amortization payment on the 8.50% 2017s falls due on November 2.

In any event, the stark language in the press release was seen as part of an aggressive strategy by PDVSA President Eulogio Del Pino to get reluctant investors on board.

“In the end it is a game of chicken and egg, but clearly they want to put pressure on the market,” said Jorge Piedrahita, CEO of broker Torino Capital.

“The political fate of Del Pino hangs on this transaction”

But the approach may backfire, as investors may be less likely to participate in an exchange amid heightened fears about a default.

“It doesn’t matter if are bluffing,” said Czerwonko. “If you think they will not be able to pay, why would people extend duration risk into that entity?” (Reporting by Paul Kilby; Editing by Marc Carnegie)

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