By Micheal Kaufman | Bidness ECT
The hard-pressed Venezuelan state-owned company, Petróleos de Venezuela SA is proposing a debt swap in exchange for unpaid invoice to oilfield services (OFS) providers amid political and financial turmoil in the country, according to the Wall Street Journal (WSJ).
The oil company is expected to issue dollar bonds worth $2.5 billion.
According to the terms of the deal, one of the subsidiaries of Petróleos de Venezuela, PDVSA, intends to issue three-year dollar denominated bond in exchange for the abolishment of some $20 billion in unpaid bill, which is to be paid to OFS companies. The newly-issued bond will be floated at a discount of roughly 40%, relative to the company’s bond pricing benchmark. According to the WSJ, the company’s other bonds are currently changing hands at 45 cents on the dollar.
The oil price plunge has resulted in a general perception across the Street that the country will default on its foreign debt of around $120 billion. If Venezuela defaults, it would further deepen the economic and political crisis that the country is currently mired in. On a side note, Venezuela is grappling with the worst recession ever since it gained independence from Spain in 1819.
Venezuela, having the largest oil reserves in Latin America, has been hit by the oil price slump, as the government’s major share of revenue comes from oil shipments. The investment bank, JP Morgan’s Emerging Market Bond Index reflects that investors are now wary of investing in Venezuelan securities. According to WSJ sources, the oil giant started hunting for international suppliers to gauge interest in the debt swap deal, following which, the company hired CP Capital Securities, based in Miami, to arrange the transaction.
Venezuela Oil Production
According to the latest data provided by the OPEC (Organization of the Petroleum Exporting Countries), Venezuela’s oil production decreased by 150,000 barrels in 2016 to 2.5 million barrels of oil equivalent per day (BOEPD). The decrease in oil production is mainly driven by the reduced level of activity by OFS giants, including Halliburton Company (NYSE:HAL) and Schlumberger Ltd.
The Venezuelan government is struggling to boost output to offset the shortage and cost of imported food and medicine, which has led to escalated looting and riots across the country.
A month earlier, Schlumberger and Halliburton announced plans to curtail their operational activity in Venezuela, after both companies failed to collect the desired proceeds from the state-operated oil company. The decision was mainly driven by insufficient payments by Petróleos de Venezuela over the past few months and lack of progress in the formulation of plan that could address the receipt issues in the past and future.
Final Thoughts
The debt swap will further increase the debt burden on the country, which is already struggling to meet its debt obligation. The state-owned company and Venezuela are bound to make bond payments of around $6 billion by the end of 2016.
Editing by Omair Siddiqui; Graphics by Ahsan Haque
Bron: Bidness ECT