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Cancellation Possible PDVSA will cancel the deal if it doesn’t achieve its target, Del Pino said. The company has pledged 50.1 percent of its stake in the holding company of U.S. refining arm Citgo Petroleum Corp. as a guarantee for the bonds. To go ahead with less than 50 percent participation would dilute the value of that stake, according to the company.

(BN) Venezuela Warns Creditors to Swap 2017 Notes by Next Monday
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Venezuela Warns Creditors to Swap 2017 Notes by Next Monday (3)
2016-10-14 18:37:02.839 GMT


By Sebastian Boyd and Angelina Rascouet
    (Bloomberg) -- Petroleos de Venezuela SA’s president said
holders of $7 billion of the company’s 2017 bonds would be wise
to tender them in a swap offer, because the alternative is
worse. He declined to give further details.
    “The best option they have is the exchange, and if it
doesn’t happen we will be evaluating all options,” Eulogio Del
Pino, also the country’s oil and energy minister, said in an
interview from Caracas. “We are against the clock and there
isn’t time for us to make a better offer.”
    Years of declining output and a crash in oil prices have
pushed PDVSA and Venezuela, which relies on crude for almost all
its hard currency income, to the brink of default. Venezuelan
bonds surged after the company first announced the swap offer
amid speculation the deal would smooth out an onerous debt-
repayment schedule and buy time for oil prices to recover. Bonds
then retreated after PDVSA said fewer creditors than hoped had
agreed to the terms.
    The state-owned oil company is trying to persuade holders
of at least half of its bonds due next year -- $3 billion that
matures in April and the rest in November -- to swap them for
new notes paying out between now and 2020. That would “give us
breathing room,” and allow PDVSA to shift maturities into 2018
and 2019 when it doesn’t have big liabilities, “as any company
would,” Del Pino said.
    PDVSA has identified about 30 percent of the holders of the
bonds, of whom the biggest have taken the swap, but the overall
acceptance rate remained low, Del Pino said. The company had
also received counteroffers from investors, but these were
“completely unacceptable,” he said.
    Venezuelan bonds are the best-performing in emerging
markets this year, with a return of about 60 percent, as the
country defied expectations it would default on its debt. While
some ratings companies have said they would treat the swap
transaction as a default, investors had been betting that it
will allow both the company and the country to keep making
payments. PDVSA’s bonds due in April 2017 fell 0.6 cent to 80.67
cents on the dollar as of 2:35 p.m. in New York. Its November
2017 bonds rose 0.09 cent to 86.22 cents.
    “This is pretty strong language from Del Pino and marks a
significant change in tone from his initial statements, where he
had committed to pay non-participants in full,” Francisco
Rodriguez, chief economist at Torino Capital LLC in New York,
wrote in a note to clients on Friday. “The fundamental question
is whether this is a bluff and whether he is really willing to
scrap the deal and go back to the drawing board if they don’t
reach 50 percent participation. Given that he is making this
statement now when they are close to the finish line, it would
be foolish not to take it seriously.”

                    Cancellation Possible

    PDVSA will cancel the deal if it doesn’t achieve its
target, Del Pino said. The company has pledged 50.1 percent of
its stake in the holding company of U.S. refining arm Citgo
Petroleum Corp. as a guarantee for the bonds. To go ahead with
less than 50 percent participation would dilute the value of
that stake, according to the company. 
    “Citgo has a value for us and we’re not going to exchange
it for anything less than a minimum 50 percent,” he said. “We
are giving two days for bondholders to understand that. This is
a good offer and the best option there is. Otherwise we will
have to analyze all options.”
    When PDVSA tried to sell Citgo two years ago it received
offers of as much as $9 billion, Del Pino said. PDVSA is
considering giving Citgo access to participate in oil production
joint ventures in Venezuela, which would increase its value, he
said.

                         Take-Up Low

    The company plans to pay the $1 billion of debt it has
coming due later this month, he said. While Rodriguez, the chief
economist at Torino, said he expects PDVSA would also be able to
make the $2 billion in payments on the 2017 bonds due in
November, Del Pino declined to make that guarantee when asked by
Bloomberg.
    After initially offering investors $1,000 of the new
securities for every $1,000 of the old bonds offered, PDVSA on
Sept. 26 sweetened the deal by pledging $1,170 for every $1,000
of the April 2017 securities tendered before the early deadline
and $1,220 for the November 2017 bonds. So far, take-up of the
swap offer has been very low, Del Pino said. PDVSA has twice
extended the deadline, which now runs out on Monday at midnight
New York time.
    “Anyone who has invested in our securities has made a
tremendous return because they have trusted in us,” Del Pino
said. “What we are asking is that investors trust in PDVSA at a
very difficult time for us. We are asking for a vote of
confidence.”

To contact the reporters on this story:
Sebastian Boyd in Santiago at sboyd9@bloomberg.net;
Angelina Rascouet in London at arascouet1@bloomberg.net
To contact the editors responsible for this story:
Brendan Walsh at bwalsh8@bloomberg.net
Garfield Reynolds, Jonathan Annells

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