(Updates bond prices, adds investor call)
By Alexandra Ulmer and Eyanir Chinea
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.
"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 will make
all payments and dismissed default talk as part of a campaign
against his socialist government.
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.
Still, the swap's uncertainty pressured the two bonds that
are part of the operation on Tuesday.
The 2017 bond maturing in April shed 1.010
points to a bid price of 80.010, while the 2017N bond
dropped 1.350 points to a bid price of 86.000.
The swap, whose deadline was extended from Monday to Friday,
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.
It was meant to ease significant payments including a $2
billion amortization in November and $5 billion in amortizations
due in 2017. But if participation is low, bond prices will
likely fall further and PDVSA will not get as big a financial
PDVSA invited investors to a conference call on Tuesday, led
by PDVSA President Eulogio Del Pino's chief of staff, Rafael
Rodriguez, according to investors and economists who took part.
"They said a very specific sentence when asked if default
was an option and the answer, in English, was: 'The options are
all options,' which means they're mulling everything," said
Venezuela-based economist Asdrubal Oliveros of Ecoanalitica.
"But, I insist, I think a default outlook should be examined
once the swap is over, once we've seen what's happened, the
percentage of participation, or whether the swap is suspended."
PDVSA did not reply to a request for further information.
(Reporting by Alexandra Ulmer; Editing by Alan Crosby)