PDVSA bonds plummet after possible replacement of the oil company by another company

Pdvsa's foreign debt securities fell on Thursday after it was announced that the Constituent Assembly plans to replace the Venezuelan state oil company with a new company    

A fall of up to 17.58% reflected the prices of the eight debt bonds of Petróleos de Venezuela that are quoted abroad, during the opening of the trading day of this Thursday, October 25. According to market operators, this drop is due to information from Argus Media about the possible replacement of the state oil company by another company.

The information provided by the brokerage house Rendivalores indicates that the PDVSA 2021 fell 17.58% while the PDVSA 2020 title fell 1.24% despite the expectation that exists in the market for the payment of 841 million dollars that must Execute this week for the amortization that should have been carried out on September 27 and whose 30-day grace period expires this Saturday, October 27.

Analysts argue that although the government of Nicolás Maduro will eliminate PDVSA to create a new company to avoid an embargo on its assets abroad, the negative perception of the Venezuelan state will continue due to the bad management over the industry that has seen its fall. oil production in more than 1.5 million barrels per day in recent years, the increase in accidents due to the lack of refinery maintenance, the massive resignation of skilled workers and the financial complication due to the high debt load with suppliers and bondholders.

This negative perception was reflected on Thursday in the significant falls of other debt securities such as PDVSA with maturity in 2035 with 15.52%, PDVSA 2027 with 14.94% and PDVSA 2037 with 14.93%

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Continúa la caída en los #BonosPDVSA que presentan una variación negativa promedio de 0,5% en su apertura

8:55 - 25 oct. 2018

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Argus Media indicated that according to a draft text of the constitutional reforms proposed by the ANC obtained by this agency, it confirms the possibility of replacing the state oil company with a new public entity.

PDVSA would be "eliminated" and replaced by "a new body," but the State will not relinquish ownership of the country's oil and gas assets and control of all related activities, according to the draft constitutional text.

"The State, for reasons of national strategy and productive political and social sovereignty, will keep all of PDVSA's shares while creating a new body or entity to administer the oil industry, including its subsidiaries, strategic associations and joint ventures," according to Article 342 of the proposed constitution, which would replace the existing 1999 Constitution

Article 340 of the draft text says that the State will maintain full control over all "hydrocarbon exploration and production activities."

Argus stressed that the creation of a new entity could be a maneuver to split the enormous responsibilities of PDVSA. But the text does not seem to refer to the debt of the company, which is currently totally in default of payment of interest on the bonds since the end of 2017.

The economist and director of the consultancy Ecoanalítica, Alejandro Grisanti, argues that several experts have recommended for several years the possibility that within the plan of debt restructuring, you can create a public company to replace PDVSA. Explains that since the state has an exploitation license (since the State is the owner of oil reserves), you can find a way to isolate PDVSA in case of a possible seizure of international assets in case it fails to comply with its obligations. credits.   

"In any case, to make a modification of this type, the Constitution must be reformed and with the support of all Venezuelans. We will have to hope that this is what is finally addressed in the project to reform the Constitution, "he said.

Grisanti said that if this proposal is carried out, it is a priority that the transfer of international assets be made at a market price, because otherwise PDVSA can be sued internationally.

"We must remember that Crystallex, in the case of Citgo, was able to demonstrate that PDVSA is the alter ego of the Venezuelan government and that since it was the one with the debt, the Canadian mining company may try to seize PDVSA assets abroad, so how could this happen to any new company that is formed from PDVSA?

He stressed that for this elimination of PDVSA assets could be transferred to a new company or to an already established company such as Caminpeg, the Military Anonymous Company of Mining, Oil and Gas Industries. However, according to Grisanti "while the government has the same policy of opacity that has always had, it will be very difficult to change the negative perception towards PDVSA or any other public oil company ."

So far, the ANC has not publicly discussed the draft of the constitutional reform bill despite having been constituted a year ago in elections that the opposition said were illegally convened. According to the information, the Constitutional Commission has received 80% of the proposals sent by the rest of the commissions and only two consultations have been made to sectors of the country, to the workers and to the university rectors.