October 18, 2019 / 2:03 PM / a month ago

Venezuelan Guaido's team proposed 90-day truce to PDVSA bondholders: sources

MEXICO CITY/CARACAS (Reuters) - Venezuela’s opposition last week sent holders of state oil company PDVSA’s 2020 bond a proposal to suspend legal actions for 90 days, the latest maneuver to avoid losing U.S. refiner Citgo Petroleum, three sources familiar with the talks said.

FILE PHOTO: A state oil company PDVSA's logo is seen at a gas station in Caracas, Venezuela May 17, 2019. REUTERS/Ivan Alvarado

The investors have not yet responded. The bond is backed by a 50.1% stake in Citgo Holding, a PDVSA subsidiary, and the opposition says it does not have the money to make a $913 million payment due Oct. 28.

The bondholders’ ability to attempt to seize that stake if the payment is missed gives them significant leverage compared with other creditors, which are also pursuing Citgo’s assets.

The proposal, known as a forbearance agreement, is one of several concurrent strategies the board is trying to implement to save Citgo, a major priority for Venezuelan opposition leader Juan Guaido, who is recognized as the country’s rightful president by more than 50 countries including the United States.

“Our short-time goal is to stop immediate legal action from both sides. Then, to reach a payment agreement,” one of the sources said, adding that a forbearance deal could pave the way for more negotiations with the bondholders.

The team is simultaneously focused on two other strategies, the sources said. The first is to prepare a lawsuit in a U.S. court to argue the bond’s issuance was illegal because President Nicolas Maduro did not seek the approval of the opposition-controlled National Assembly. The second is to press U.S. President Donald Trump to take executive action to protect Citgo.

“It’s not credible to ask bondholders for forbearance while calling the PDVSA 2020 bond illegal. I doubt the forbearance route will succeed under the current threatening stance,” said a holder in New York, who did not want to be named because he was not authorized to speak to the media.

A spokesman for the Venezuela Creditors Committee, which groups holders of Venezuelan government and PDVSA debt, did not respond to a request for comment on the proposal. Neither PDVSA, which remains under Maduro’s control, nor Guaido’s ad-hoc PDVSA board responded to requests for comment.

Guaido, who presides over the National Assembly, invoked the constitution to assume a rival presidency in January, arguing Maduro’s 2018 re-election was illegitimate. His appointees now control Citgo, but Maduro has retained a firm grip on power in the OPEC nation.

Maduro, a socialist who has overseen an economic collapse and is accused of corruption and human rights violations, calls Guaido a U.S. puppet seeking to oust him in a coup and “steal” Citgo.

Washington sanctioned PDVSA in January as part of its push to cut off cash flow from Maduro, in the process also freezing PDVSA’s proceeds from oil sales to U.S. customers. It is not clear how much money was affected, and Guaido’s team has not been able to access it to make the payment.

Citgo’s own debt covenants currently prevent it from making dividend payments to PDVSA, meaning it cannot use its considerable cash reserves to help the ad-hoc board pay the bond.

U.S. investment fund T. Rowe Price also offered to lend the opposition the money needed to make the payment, but only if the U.S. government eliminated an element of the sanctions preventing U.S. funds from trading Venezuelan bonds.

“There was expectation from some bondholders that money will show up, but the truth is that it is not possible to fully pay in the short term,” one of the sources said.

Reporting by Marianna Parraga and Corina Pons; Additional reporting by Mayela Armas and Luc Cohen; Editing by Steve Orlofsky and Daniel Wallis

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