HAL Halliburton Co

CARACAS—Venezuela's cash-strapped state oil company is offering service providers a debt exchange, proposing to swap $2.5 billion worth of debt for dollar bonds, according to two contractors who were offered the deal and documents reviewed by the Wall Street Journal.

Under the deal, a subsidiary of Petró leos de Venezuela SA, known as PDVSA, would issue a three-year international bond and hand it to approved suppliers in exchange for cancelling some of the $20 billion worth of unpaid invoices. The bond would be priced at about a 40% discount to the company's benchmark obligation, which currently trades at about 45 cents on the dollar, said the sources and the deal prospectus.

PDVSA representatives began sounding out local and international suppliers last week to gauge interest in the swap, and the company has hired Miami firm CP Capital Securities to arrange the transaction, said the sources. PDVSA and CP Capital didn't reply to requests for comment.

"CP Capital has been hired to advise PDVSA on the exchange of commercial invoices for financial debt with a minimum amount of $2.5 billion," read a deal prospectus viewed by The Wall Street Journal.

Venezuela's oil production has slipped 150,000 barrels this year to 2.5 million barrels per day, according to the Organization of the Petroleum Exporting Countries, as service giants Schlumberger and Halliburton reduced activity because of unpaid bills. The government has been struggling to boost output to alleviate acute shortages of imported food and medicine, which are fuelling riots and looting across the country.

Both contractors interviewed by the Wall Street Journal said they would reject the deal in its current form, as the value of the offered bonds is less than the amount of debt they expect to get back through litigation.

The bond issue would raise the financial burden for a government already struggling to meet its international obligations. The Venezuelan government and PDVSA are due to make about $6 billion worth of bond payments through the end of the year, obligations which consultancy Sintesis Financiera believes can only be met by cutting imports of basic goods to the lowest per capita levels since the 1950s.

(END) Dow Jones Newswires

May 23, 2016 21:35 ET (01:35 GMT)

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