CARACAS Oct 18 Venezuela's bond prices fell on
Tuesday after state oil producer PDVSA again extended a deadline
for its $5.3 billion debt swap offer and warned that if the
operation failed the cash-strapped company might struggle to pay
The swap offer was designed to ease operations at the
company heaving under low oil prices, slumping production and an
extreme cash flow deficit that has left it unable to pay
contractors on time.
But low participation led PDVSA to sweeten the exchange's
terms, extend deadlines and, on Monday night, warn that it
"could be difficult" to pay bondholders if the operation flops.
The swap allows investors to exchange bonds maturing in 2017
for a new bond maturing in 2020 that is backed by shares in
PDVSA's U.S. subsidiary, Citgo Holdings Inc.
The swap deadline was extended from Monday to Friday.
The cost of a default would be steep for PDVSA
and the market largely sees its comments as an attempt to push
participation to the 50 percent threshold.
"They're trying to scare the market," said one fund manager,
adding he did not think the strategy would work. "They know the
cost of not paying is much higher than the cost of paying."
President Nicolas Maduro has insisted Venezuela and PDVSA
will make all debt payments and dismissed default talk as part
of a politically motivated campaign against his socialist
Sources said central bank president Nelson Merentes
reiterated Venezuela's willingness to pay in a rare private
meeting with investors in Washington this month.
The benchmark PDVSA 2022 bond was off 3.500
points, or 5.85 percent, to a price of 59.800, according to
Thomson Reuters data.
The two bonds part of the swap operation were barely
budging. The 2017 bond maturing in April gained
0.24 points to a bid price of 80.010, though the 2017N bond
dropped 2.010 points to a bid price of 86.000.
The swap was meant to ease significant payments including a
$2 billion amortization in November and $5 billion in
amortizations due in 2017.
But if participation in the swap is low, bond prices will
likely fall further and PDVSA will not get as big a financial
"We assume that these threats represent a negotiation tactic
to encourage participation," said Siobhan Morden at Nomura
Securities International, adding she could not rule out less
commitment to paying debt down the line.
"The reluctance of PDVSA to alter the terms and further
improve the exchange ratio is worrisome as it does not show
flexibility of respecting market forces to provide the necessary
terms for a successful exchange," Morden said.
(Reporting by Alexandra Ulmer; Editing by Will Dunham)