Petroleos de Venezuela SA bonds plunged after Exxon Mobil Corp. won court orders yesterday in the U.S., U.K. and the Netherlands freezing more than $12 billion of the Venezuelan oil company's assets. Exxon Mobil sought the freeze because of its concern that the Venezuelan state oil company would shift assets to other nations, putting them out of reach of an international arbitration commission. Petroleos de Venezuela, as the company is known, last year seized joint ventures it had with foreign energy companies as part of President Hugo Chavez's drive to increase government control of energy resources.
``There's huge uncertainty over the real extent of this issue because this is now in the hands of lawyers,'' Henry Stipp, who helps manage $10 billion of assets for Threadneedle Asset Management in London, said in a telephone interview. ``Investors may not see this as a cash-flow event for Petroleos de Venezuela, but a situation that raises their eyebrows over the company's worsening legal and management risks.''
The yield on Petroleos de Venezuela's 5.25 percent bond due in April 2017 soared 40 basis points, or 0.4 percentage point, to 11.13 percent at 1 p.m. New York time, according to composite data compiled by Bloomberg. The yield rose 1.3 percentage points to 11.95 percent earlier today, its biggest jump ever since trading began last April. The price dropped 2.25 cents to 66.75 cents on the dollar.
Venezuelan Energy and Oil Minister Rafael Ramirez, also the Petroleos de Venezuela president, vowed to fight Exxon's ``bluff'' to freeze the assets and guaranteed the company's operations and cash flow won't be affected. Ramirez, speaking at a press conference in Caracas, said the only asset that has been frozen is a New York account with about $300 million.
`Judicial Terrorism'
Exxon Mobil's 41.7 percent stake in a heavy oil project in Venezuela's Orinoco Belt region had a net-book value of about $750 million, according to a September filing with the U.S. Securities and Exchange Commission. Irving, Texas-based Exxon Mobil is the world's largest oil company and last year was the most-profitable U.S. corporation in history.
``This is pure judicial terrorism,'' Ramirez said of the freeze. ``If they think we will backtrack on our nationalization policies after this, well, gentlemen from Exxon Mobil, you are wrong again.''
The freeze won't disrupt supplies of oil, Ramirez said.
Default Potential
The cost of buying five-year default protection on $10 million of Petroleos bonds rose to $702,500 today from $690,000 yesterday, according to Morgan Stanley & Co. Credit-default swaps are financial instruments used to speculate on the ability of countries or companies to repay their debt. An increase in price suggests deterioration in credit quality.
Petroleos de Venezuela is unlikely to default on the debt following the freeze, ABN Amro Inc. analyst Aaron Holsberg and Lehman Brothers Holdings Inc. economist Gianfranco Bertozzi wrote in separate notes to clients. In a ``worst-case scenario,'' in which assets remain frozen, the company could arrange payment through a trustee, Bertozzi said.
``There's huge uncertainty over the real extent of this issue because this is now in the hands of lawyers,'' Henry Stipp, who helps manage $10 billion of assets for Threadneedle Asset Management in London, said in a telephone interview. ``Investors may not see this as a cash-flow event for Petroleos de Venezuela, but a situation that raises their eyebrows over the company's worsening legal and management risks.''
The yield on Petroleos de Venezuela's 5.25 percent bond due in April 2017 soared 40 basis points, or 0.4 percentage point, to 11.13 percent at 1 p.m. New York time, according to composite data compiled by Bloomberg. The yield rose 1.3 percentage points to 11.95 percent earlier today, its biggest jump ever since trading began last April. The price dropped 2.25 cents to 66.75 cents on the dollar.
Venezuelan Energy and Oil Minister Rafael Ramirez, also the Petroleos de Venezuela president, vowed to fight Exxon's ``bluff'' to freeze the assets and guaranteed the company's operations and cash flow won't be affected. Ramirez, speaking at a press conference in Caracas, said the only asset that has been frozen is a New York account with about $300 million.
`Judicial Terrorism'
Exxon Mobil's 41.7 percent stake in a heavy oil project in Venezuela's Orinoco Belt region had a net-book value of about $750 million, according to a September filing with the U.S. Securities and Exchange Commission. Irving, Texas-based Exxon Mobil is the world's largest oil company and last year was the most-profitable U.S. corporation in history.
``This is pure judicial terrorism,'' Ramirez said of the freeze. ``If they think we will backtrack on our nationalization policies after this, well, gentlemen from Exxon Mobil, you are wrong again.''
The freeze won't disrupt supplies of oil, Ramirez said.
Default Potential
The cost of buying five-year default protection on $10 million of Petroleos bonds rose to $702,500 today from $690,000 yesterday, according to Morgan Stanley & Co. Credit-default swaps are financial instruments used to speculate on the ability of countries or companies to repay their debt. An increase in price suggests deterioration in credit quality.
Petroleos de Venezuela is unlikely to default on the debt following the freeze, ABN Amro Inc. analyst Aaron Holsberg and Lehman Brothers Holdings Inc. economist Gianfranco Bertozzi wrote in separate notes to clients. In a ``worst-case scenario,'' in which assets remain frozen, the company could arrange payment through a trustee, Bertozzi said.
``Our view is that Petroleos de Venezuela's operations and debt service will be unaffected, that court rulings are an Exxon Mobil negotiating tactic and that this will drag on for a few months,'' New York-based Holsberg, the head of Latin America credit research for ABN Amro, wrote in his note. ``Petroleos de Venezuela is likely to settle for far less than Exxon's demanding but more than is currently on the table.''
`Socialist Revolution'
Petroleos de Venezuela has become the biggest source of revenue for Chavez's ``socialist revolution,'' which aims to provide low-income Venezuelans with free health care and education and subsidies for housing. Petroleos de Venezuela spent $11.8 billion on social programs last year, compared with $5.8 million on its domestic oil and natural-gas operations, a document released March 5 by the Energy Ministry showed.
Concern that Chavez has forced Petroleos de Venezuela to spend more on his policies than on company operations triggered a 23 percent drop in the price of the company's debt since April, traders including Interacciones Mercado de Capitales SA's Nelson Corrie say.
Petroleos de Venezuela's debt rose almost eightfold last year to $16 billion from $2.3 billion, according to company statements released last month. The company last year sold $7.5 billion in 10-, 20- and 30-year bonds to finance a five-year expansion to more than double production capacity, and borrowed about $5 billion from banks to pay for current projects. The Petroleos de Venezuela bond sale was the largest-ever Latin American domestic corporate bond offering.
The company has to make a $200 million coupon payment for bondholders in April, the statements showed.
Petroleos de Venezuela last month refinanced a $1.125 billion one-year revolving credit facility with BNP Paribas SA, regulatory documents showed. In February 2007, it received a $3.5 billion loan from a group led by the Japan Bank for International Cooperation. In exchange, Petroleos de Venezuela agreed to supply as many as 30,000 barrels a day of oil and refined products for 15 years to Japan's Marubeni Corp. and Mitsui & Co.
`Socialist Revolution'
Petroleos de Venezuela has become the biggest source of revenue for Chavez's ``socialist revolution,'' which aims to provide low-income Venezuelans with free health care and education and subsidies for housing. Petroleos de Venezuela spent $11.8 billion on social programs last year, compared with $5.8 million on its domestic oil and natural-gas operations, a document released March 5 by the Energy Ministry showed.
Concern that Chavez has forced Petroleos de Venezuela to spend more on his policies than on company operations triggered a 23 percent drop in the price of the company's debt since April, traders including Interacciones Mercado de Capitales SA's Nelson Corrie say.
Petroleos de Venezuela's debt rose almost eightfold last year to $16 billion from $2.3 billion, according to company statements released last month. The company last year sold $7.5 billion in 10-, 20- and 30-year bonds to finance a five-year expansion to more than double production capacity, and borrowed about $5 billion from banks to pay for current projects. The Petroleos de Venezuela bond sale was the largest-ever Latin American domestic corporate bond offering.
The company has to make a $200 million coupon payment for bondholders in April, the statements showed.
Petroleos de Venezuela last month refinanced a $1.125 billion one-year revolving credit facility with BNP Paribas SA, regulatory documents showed. In February 2007, it received a $3.5 billion loan from a group led by the Japan Bank for International Cooperation. In exchange, Petroleos de Venezuela agreed to supply as many as 30,000 barrels a day of oil and refined products for 15 years to Japan's Marubeni Corp. and Mitsui & Co.
Source: Bloomberg|By Guillermo Parra-Bernal
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