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PdV debt payment in limbo ahead of new deadline

30 Oct 2017, 9.11 pm GMT

PdV debt payment in limbo ahead of new deadline

Caracas, 30 October (Argus) — Venezuelan state-owned PdV´s 27 October principal payment on a 2020 bond, backed by a majority stake in its US downstream subsidiary Citgo, has yet to materialize with bondholders ahead of an even larger bond maturity due on 2 November, financial sector executives tell Argus.

Three bond traders and asset managers said separately that their clients holding PdV 2020 bonds have not received any payments yet from PdV.

A PdV finance executive told Argus today that the company paid the $842mn of principal owed on its $3.368bn 8.5pc PdV 2020 bond by the deadline of 10am eastern time on 27 October as stipulated in the bond contract.

"Despite the illegal and illegitimate sanctions and the openly hostile attitude of the financial blockade, PDVSA has already begun the process of bank transfers corresponding to the principal payment on the PdV 2020 bond in the amount of $841.88mn to the account of JP Morgan bank," PdV said on 27 October, referring to US financial sanctions imposed in August 2017.

JP Morgan declined to comment.

The New York-based bank is not the paying agent for PdV bonds, but rather one in a chain of financial institutions through which such payments typically pass. The paying agent is believed to be Delaware Trust, which also declined to immediately comment.

Venezuela as of today has missed almost $800mn of interest payments that were due during October on nine bonds, including four PdV bonds totaling a combined $10.86bn of principal, four Republic of Venezuela sovereign bonds totaling a combined $9.6bn, and a $650mn Electricidad de Caracas bond that reaches full maturity in April 2018.

All of the missed interest payments are still within a 30-day grace period.

The 27 October principal payment obligation of $842mn on the PdV 2020 bond had no such grace period in the contract. The bond is backed by 50.1pc of the equity in Citgo, a significant US oil refiner and distributor.

With PdV already in arrears on $1.194bn of principal and interest that was due in October, bond investors are becoming increasingly nervous that a default event may be unfolding despite the Venezuelan government's assurances that it will not miss any debt maturities.

The oil company is committed to pay $1.169bn of principal and remaining interest on a PdV 2017 bond that matures on 2 November.

If investors holding 25pc of the total value of the PdV 2020 bond agree that a default event has occurred, legal action could be initiated to seize the majority stake in Citgo pledged by PdV in October 2016.

PdV also pledged the remaining 49.9pc of Citgo's equity to Russian state-controlled Rosneft as part of a secretive $1.5bn loan deal in November 2016. US congressional leaders earlier this year urged the administration of US president Donald Trump to block Rosneft from taking control of the Citgo equity if PdV defaults, on national security grounds.

A PdV default on the 2020 bond likely would also trigger creditor calls on up to $5bn of Citgo debt unrelated to the bond in default.

If the firm defaults, "there would be a race between bondholders and Citgo creditors to seize Citgo's assets, and the mess certainly would wind up in US courts for years, especially if Citgo files for bankruptcy protection against the onslaught of PdV bondholders and its own term-loan creditors," a Caracas-based bond trader said.

PdV and Venezuela, which depends on oil exports for nearly all of its revenue, have been struggling to pay bond debt amid shrinking production capacity and growing oil-backed loan obligations.

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