Analysis: Venezuela sees refinery debt swap as a model for future deals

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The logo of state-owned oil company PDVSA is seen on a tank at an oil facility in Lagunillas, Venezuela, January 29, 2019. REUTERS / Isaac Urrutia / File Photo

CARACAS, Aug. 25 (Reuters) – The Venezuelan socialist government views the swap it made last week of shares in a Dominican oil refinery for defaulted bonds as a possible model for future deals, as ‘he’s looking to mend ties with creditors, four people familiar with the deal said.

These debt-for-equity swaps are common in corporate bankruptcy proceedings and have been used by other defaulting Latin American countries in the past. They could be part of a solution for oil-rich but crisis-stricken Venezuela to reduce debt by $ 160 billion, the people said, who asked not to be identified.

But other exchanges, especially for higher-value assets in Venezuela, face many hurdles.

US sanctions aimed at overthrowing President Nicolas Maduro complicate deals with the government. State-owned assets are in poor condition after years of underinvestment and mismanagement. And a legacy of expropriations as well as price and currency controls has left investors nervous.

In last week’s deal, PDVSA sold its 49% stake in the Refidomsa refinery to a Dominican company in exchange for bonds. This company then sold the shares to the Dominican government, which already owned 51% of the company, for 74 million euros ($ 88 million). Read more

The company traded Venezuelan bonds with a face value of $ 360.9 million as part of the deal, Dominican Finance Minister Jochi Vicente said in a statement on Wednesday. This meant that the bonds were valued at around 24 cents on the dollar for the purposes of the deal.

One of the people said the deal is an alternative for creditors seeking to seize Venezuela’s assets in various jurisdictions as debt set-off, at a time when sanctions are complicating global restructuring talks. Read more

“Think of him as an icebreaker,” said the person, who spoke on condition of anonymity, adding that Venezuela hoped to show that it had the capacity to execute such arrangements and was serious about the issue. conclusion of agreements.

Venezuela’s information ministry did not respond to a request for comment.

VENEZUELA INVESTOR COURTS

The move came as Maduro is courting private sector investment to boost the economy after a protracted collapse, breaking with the state-led development orthodoxy promoted by his predecessor, the late Hugo Chavez.

Maduro’s allies have described the change as a response to US sanctions. In May, the government passed a law to make it easier for companies to sign agreements, which it called “anti-blocking” law.

“They intend to be pro-market and say ‘yes I want to pay the debt: I’m good at it’,” said Guillermo Guerrero, senior fixed income strategist at EMFI, a financial services firm. based in London.

Venezuela still has stakes in companies such as a Swedish oil refiner, an aluminum plant in Costa Rica, and a Uruguayan bank. Its overseas asset, jewel in the crown, US refiner Citgo Petroleum Corp (PDVSAC.UL), is currently protected from foreclosure or sale by Washington.

In total, Venezuela has around $ 6 billion in assets abroad that could be used for debt-for-stock swaps, Guerrero said, far from being a panacea for a country that owes $ 58.8 billion. $ of bonds in default and an additional $ 20.8 billion in arrears. interest. It owes billions more to other types of creditors.

But if Venezuela or PDVSA repurchases bonds through asset swaps at a discount to the face value of the bonds, the decline in outstanding debt could exceed the value of the assets – as was the case. case in the Refidomsa agreement. Sovereign bonds trade around 10% of their face value, while PDVSA bonds trade around 5% of their face value.

More important than the price of this deal is the message it sends, one of the people said. The government is hoping that Venezuela’s willingness to swap state-owned assets for debt relief could attract investors to the OPEC country, where PDVSA controls huge reserves of crude.

Reporting by Luc Cohen in New York and Mayela Armas in Caracas Editing by Daniel Flynn and Rosalba O’Brien

Our standards: Thomson Reuters Trust Principles.



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