Inside, confidential and off the record
PDVSA: Postponing the inevitable
The ultimate "kicking the can down the road"
Venezuela is about to embark on the ultimate "kicking the can down the road" debt restructuring. It is offering to exchange 5.6 billion dollars in PDVSA bonds amortizing in 2016 and 2017 for bonds amortizing in 2018-2020. At today's prices for the exchangeable bonds, this is equivalent to borrowing at 28% interest, even though the new bonds are collateralized with the shares of CITGO. What happens to the cash flow of the company? It "saves" US$ 1.9 billion in 2016 and 2.4 billion in 2017 (i.e. 4.3 billion in total). But it will have to cough up an additional 2.04 billion in 2018, 1.90 billion in 2019 and 2.56 billion in 2020 for a total of 6.5 billion in the 2018-2020 period. In other words, the net cash flow difference to 2020 is a worsening of 2.2 billion dollars. The company does not have 2-year investment projects with a 28% annual rate of return. The company is buying time, but it is buying very little time at a price it cannot afford.
Ricardo Hausmann | facebook| Sep. 30, 2016
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