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PdV keeps financial head above water, for now

2 Nov 2017, 6.08 pm GMT

PdV keeps financial head above water, for now

Caracas, 2 November (Argus) — Venezuelan state-owned oil company PdV looks to have stepped back from the brink yet again on its latest debt payment, after an $842mn principal payment on a 2020 bond due on 27 October finally started reaching bondholders overnight.

The stakes were especially high this time, because the 2020 bond is backed by a 50.1pc stake in PdV's US downstream subsidiary Citgo.

The nail-biting delay, financial executives say, probably had less to do with PdV´s dwindling cash position and novice financial team than with nervous calls by US intermediary banks to the US Office of Foreign Assets Control to make sure they were not running afoul of US financial sanctions on the Opec country.

Now the clock is ticking for PdV to pay $1.1bn in principal due today on a PdV 2017 bond.

In contrast to 27 October, when PdV issued a statement asserting that it had initiated the debt payment, the company has not yet confirmed that today's scheduled bond principal payment has begun.

Sovereign debt experts say the country´s debt conundrum is unprecedented and unsustainable.

As of yesterday, Venezuela had not paid more than $800mn of interest due during October on nine bonds, including four PdV bonds, four sovereign bonds and a ninth bond owed by Electricidad de Caracas, a formerly private utility absorbed by state-owned power company Corpoelec in 2010.

If PdV fails to pay the $48mn interest due on the $1.12bn, 8.5pc PdV 2017 bond reaching final maturity today, the company's unpaid bond interest arrears accumulated since 4 October would grow to over $850mn.

PdV invoked a 30-day grace period on October's bond interest payments that allows the company to start making last month's delayed interest payments on 10 November when an additional $28mn are due on a $650mn, 8.5pc Elecar bond that reaches final maturity in April 2018.

The Venezuelan central bank's reported international reserves of $9.86bn have not changed following PdV's announcement on 27 October that it had paid $842mn of principal on the $3.368bn, 8.5pc 2020 bond.

The funds to cover the 2020 principal payment are likely to have come from spare proceeds returned to Venezuela's government after it defaulted in October on over-collateralized gold swaps with Deutsche Bank and Citibank.

Venezuela's attempts to renegotiate the gold-backed debt failed because the two banks were worried about possible US sanctions violations.

A future restructuring of PdV debt could begin with a swap of its bonds for Republic of Venezuela bonds at par, with PdV then pledging its assets to the sovereign to secure its obligation to reimburse the Republic. This model should protect the oil company´s assets from liens or seizure by other creditors while a broader restructuring is hammered out, according to Lee Buchheit, a sovereign debt expert and partner at New York-based law firm Cleary Gottlieb.

Buchheit says US sanctions currently prevent such an approach, but the sanctions could be relaxed under a new administration in Caracas.

The closest precedent for this approach is fellow Opec member Iraq after the 2003 fall of Saddam Hussein, Buchheit tells Argus. In that case, bondholders accepted 10.25 cents on the dollar for their Saddam-era claims after the UN Security Council immunized Iraq's assets from seizure by creditors.

But in contrast to Iraq, most of Venezuela´s debt is not in the hands of Paris Club bilateral creditors, but rather bondholders, China and Russia, and other claimants that hold sizeable arbitration awards.

Among companies with unpaid arbitration awards are ExxonMobil and Canadian mining firm Crystallex.


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