NEW YORK, Feb. 12 /PRNewswire/ -- Standard & Poor's today placed its
ratings on the senior unsecured notes issued by PDVSA Finance Ltd., a wholly
owned subsidiary of Petroleos de Venezuela S.A. (PDVSA), on CreditWatch with
negative implications (see list). This CreditWatch listing follows the
placement of the foreign currency sovereign credit rating of PSVSA's owner,
the Bolivarian Republic of Venezuela, on CreditWatch with negative
implications.
The CreditWatch placement affects $3.6 billion of U.S. dollar-denominated
notes and 200 million in euro-denominated notes (see list below). The rating
on the PDVSA Finance notes will depend on Standard & Poor's assessment of
changes in the level of sovereign risk and the extent to which the structure
mitigates such sovereign risk. While a downgrade of the sovereign would not
trigger an automatic downgrade of PDVSA Finance, the level of political
control and influence of PDVSA by the government, as most recently evidenced
by the appointment by the government of PDVSA's fourth president in three
years, makes such an action likely.
On a separate note, the recent news regarding the claim of breach of
contract brought against PDVSA by its joint venture partner, Lyondell Chemical
Co., also underscores the sovereign risk inherent in public sector cross
border future flow transactions. Standard & Poor's is reviewing PDVSA's claim
that that lawsuit will not have a material effect on PDVSA Finance because the
action is brought against PDVSA and PDVSA Petroleo S.A. and not PDVSA Finance.
While the lawsuit was not the reason for the CreditWatch placement, when
reviewing sovereign risk for a structured transaction supported by government-
owned assets, Standard & Poor's takes into consideration the public sector
entity's unwillingness or inability to abide by its agreements or contracts
because of shareholder pressure. This is true for PDVSA Finance, since as of
Dec. 31, 2001, up to 29% of the exports supporting PDVSA Finance's debt were
sold to wholly owned subsidiary, CITGO Petroleum Corp. (CITGO), and a further
32% were sold to joint venture partners. Standard & Poor's believes that
during a sovereign stress scenario there is a greater likelihood that PDVSA
would violate its agreements and redirect export revenues from CITGO, and, to
a lesser degree, its joint venture partners, than from nonaffiliated
companies. Also, Standard & Poor's has been notified by PDVSA that the company
is planning to cut production in March 2002, which, if carried out, would
again reduce crude oil deliveries to its joint venture partners and other
customers by as much as 20%. While the cuts are expected to lead to lower debt
service coverage levels (defined as export revenues over debt service), the
extent of any reduction in coverage levels will depend on the effect the cuts
have on future oil prices. Standard & Poor's will continue to monitor coverage
levels, which although declining, continue to be strong, with the ratio of
exports revenues to debt service at a very comfortable 19 times in January
2002.
A copy of Standard & Poor's complete rating analysis on PDVSA Finance Ltd.
is available on RatingsDirect, Standard & Poor's Web-based credit analysis
system, at http://www.ratingsdirect.com. To speak with an analyst directly regarding
PDVSA Finance contact Nancy Gigante Chu, Structured Finance Latin America, New
York (1) 212-438-2429; regarding PDVSA contact Jose Coballasi, Corporate
Ratings, Mexico City (52) 55-5279-2014; and regarding the rating action on the
Bolivarian Republic of Venezuela, contact Graciana del Castillo, Sovereign
Ratings, New York (1) 212-438-7353.
RATINGS PLACED ON CREDITWATCH WITH NEGATIVE IMPLICATIONS
PDVSA Finance Ltd.
Issue Rating
Class A 6.45% notes due 2004 BBB-
Class B 6.65% notes due 2006 BBB-
Class C 6.8% notes due 2008 BBB-
Class D 7.4% notes due 2016 BBB-
Class E 7.5% notes due 2028 BBB-
Class F 8.75% notes due 2004 BBB-
Class G 6.25% notes due 2006 BBB-
Class H 9.4% notes due 2007 BBB-
Class I 9.75% notes due 2010 BBB-
Class J 9.95% notes due 2020 BBB-
Class K 8.5% notes due 2012 BBB-
SOURCE Standard & Poor's
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Related links:
http://www.standardandpoors.com/ratings
CONTACT:
Nancy Gigante Chu, +1-212-438-2429, or Jose
Coballasi, +52-55-5279-2014, or Marie Cavanaugh, +1-212-438-7343,
all of Standard & Poor's
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