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Venezuela to reduce PDVSA dollar-denominated bond sales this year

CARACAS, Mar 06 2012

Petroleos de Venezuela SA, the state-owned oil company, plans to reduce dollar-denominated bond sales this year as it weighs alternative financing options including a sale of shares in joint ventures on the Hong Kong stock exchange.

PDVSA, as the Caracas-based company is known, pays lower interest rates on private loans with China 's Development Bank than on dollar bonds and may conduct one “small” bond issue this year, a company official, who isn't authorized to speak publicly, said in an interview in Caracas on March 2.

President Hugo Chavez has relied on PDVSA to finance his social programs since taking power in 1999, reducing cash for the oil company to invest in increasing production even as total debt has climbed more than 10-fold in the last five years. PDVSA issued $10.3 billion of bonds last year with interest rates as high as 12.75 percent, according to data compiled by Bloomberg.

PDVSA may reduce its stakes in joint ventures to as little as 51 percent as part of plans for a potential private placement in Hong Kong, according to the official. PDVSA has held at least 60 percent of each project with foreign oil companies in the Orinoco heavy-crude belt since Chavez nationalized the petroleum industry in 2007.

“Fiscal Discipline”

“A listing would likely put a certain fiscal discipline and transparency onto PDVSA, which they certainly need, even though Hong Kong is probably not as strict as the SEC,” Thomas O'Donnell, an oil analyst affiliated with the New School University in New York, said in an e-mailed response to questions.

“This certainly ties new money to better PDVSA practices much more so than the Chinese simply giving them money like before, and insisting on transparency and accountings.”

PDVSA will use proceeds from the listing to invest in the development of the Orinoco belt, one of the world's largest oil reserves, the PDVSA official said. The operation wouldn't be considered a privatization, as shares will be offered in a holding company created to manage PDVSA's stakes in the joint ventures and not in the state oil company itself, he said.

PDVSA is studying the Hong Kong stock exchange because of investor demand in the region and Venezuela's close political ties with China, according to the official. The company may consider an initial public offering in the Orinoco ventures if the private placement goes well, the official said, without providing a time frame for the operation.

High Coupon

Citic Group Corp., China's largest state-owned investment company, is currently conducting due diligence to purchase a 10 percent stake in the Petropiar heavy-crude project held with PDVSA and California-based Chevron Corp., the official said. PDVSA doesn't need permission from its minority partners to sell, list, or reduce its stakes in the ventures, according to the official.

PDVSA President and Oil Minister Rafael Ramirez told the National Assembly last year that the high coupon on PDVSA issues was designed in coordination with the finance ministry to avoid weakening the implicit exchange rate for local investors who buy the securities in bolivars and sell them abroad for dollars.

Total debt at the state oil producer surged 40 percent in 2011 from a year earlier to $34.9 billion.


The yield on PDVSA's benchmark 8.5 percent bonds due in 2017 rose 15 basis points today at 10:18 a.m. New York time to 10.74 percent, according to data compiled by Bloomberg. The bond's price fell 0.59 cents to 90.69 cents on the dollar.

Rising oil prices may also reduce the company's financing needs as Venezuela's export basket rises to the highest since August 2008. The price of Venezuela's oil rose 2.2 percent last week to $117.10 a barrel.

PDVSA secured $4 billion of financing from China Development Bank (SDBZ) this year to boost production in a joint venture with China National Petroleum Corp. (CNPZ) at an interest rate of London Interbank Offered Rate plus 4.5 percent, the PDVSA official said. Venezuela hopes to receive a total of $5 billion in financing this year from China for projects with CNPC, he said.

Chevron Corp. (CVX) , which has minority stakes in at least three oil ventures in the South American country, will get $2.5 billion in financing to boost output at the Petroboscan venture with PDVSA in a mature field in western Venezuela, the official said.

Chinese Loans

Margarita Arango, a Caracas-based Chevron spokeswoman, said yesterday in an e-mailed response to questions that the company had no comment.

China Development Bank and Venezuela agreed to renew a $6 billion bilateral investment fund in February, of which $2 billion will go directly to PDVSA to increase production, the official said.

PDVSA expects to secure $7.5 billion to invest in operations in the first half of the year, more than half of the $13 billion needed to boost production by 500,000 barrels a day, he said.

The Oil Ministry is preparing to offer incentives to private partners that operate in the Orinoco belt, the PDVSA official said. The government is considering waving a windfall tax on new production until investment has been recovered and an exit clause that would allow companies to pull out of the ventures and recover investments, said the official.

The ministry is preparing a signed letter that will be sent to the companies to explain and formalize the incentives this month, said the official.

Story by Nathan Crooks and Corina Pons from Bloomberg

Bloomberg| Mar 5, 2012 12:27 PM GMT-0430


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