Puebla, Mexico, October 21, 2016 (venezuelanalysis.com) – Venezuela’s state oil firm PDVSA has hinted it could soon begin defaulting on debt obligations, amid concerns over a failed overture to bondholders that fell flat Friday.
For weeks, the company has been trying to coax its bondholders into accepting a deal that would effectively postpone payments due in 2017. Set to elapse Friday, the deal failed to entice most investors, despite dire warnings from the company.
"If the exchange offers are not successful, it could be difficult for the company to make scheduled payments on its existing debt," PDVSA said in a statement Monday.
The offer would allow investors to exchange around US$5.325 billion in 2017 bonds for securities that mature in 2020. So far, PDVSA says it hasn’t been able to convince enough bondholders to take the deal, and has now pushed back the Friday deadline to October 28– the same day the firm is also expected to pay out US$1.6 billion in separate debt obligations. Another debt payment of just under US$3 billion is also set to fall on November 2.
Without the bond deal, PDVSA said it may need to “evaluate alternative options” to settle its debts.
The statement continued, “Low oil prices will adversely affect the company's ability to generate cash flow from operations, which will impair the company's ability to make scheduled payments on its existing debt, including the existing notes.”
Although the company says its future could ride on the proposed bond deal, not everyone is convinced a default is on the table.
“I think it's mostly just a threat,” Siobhan Morden from Nomura Holdings told CNN earlier Friday.
However, Morden continued, “The concern is that they're starting to talk about it.”
PDVSA is the single largest source of income for the Venezuelan government, and oil sales accounting for well over 90 percent of the country’s export revenue.
For over a year, PDVSA has been battered by low international oil prices, sparking an economic downturn for the South American country.
Since the downturn, Venezuela has faced widespread scarcity of basic consumer goods, and official data from early this year put the Central Bank’s reserves at US$12 billion. That figure is the lowest in over a decade.
President Nicolas Maduro has blamed the economic crisis on both low oil prices and an “economic war” against his administration, while the opposition has accused the president and his predecessor Hugo Chavez of mismanagement.
On Wednesday, a commission of the opposition-controlled National Assembly issued a report alleging roughly US$11 billion inexplicably disappeared from PDVSA’s coffers between 2004 and 2014.
The oil company is yet to respond to the allegations, though it’s dismissed similar claims in the past by labelling them smear campaigns.