Fitch Expects to Rate Petroleos de Venezuelas USD3B Proposed Issuance B+/RR4

Fitch Ratings expects to assign a ‘B+/RR4’ rating to Petroleos de Venezuela, S.A.’s (PDVSA) proposed USD3 billion senior unsecured debt issuance due 2015, 2016 and 2017, as well as the proposed USD3 billion bond exchange. With the exchange, the company is offering to replace 2011 bonds with new notes due 2013. The company expects to use the proceeds of the debt issuance to fund capital investments and for general corporate purposes.

PDVSA’s credit quality reflects the company’s linkage to the government of Venezuela as a state-owned entity, combined with increased government control over business strategies and internal resources. This underscores the close link between the company’s credit profile and that of the sovereign. PDVSA’s ratings also consider the company’s strong balance sheet; sizeable proven hydrocarbon reserves; strategic interests in international downstream assets; private participation in upstream operations; and geographic proximity to the North American market.


PDVSA’s is a state-owned entity whose royalties and tax payments represent more than 50% of the government’s revenues, and it is of strategic importance to the economic and social policies of the country. Over the past five years, PDVSA’s total transfers to the government have averaged approximately 37% of revenues. Also, the government has used PDVSA’s balance sheet to nationalize electricity companies and acquire industrial companies. During 2008, the government also took the additional step of changing PDVSA’s charter and mission statement to allow it to participate in any industry that could contribute to the social development of the country, including health care, education, and agriculture.


PDVSA’s cash generation declined during 2009 due to lower hydrocarbon prices. As of year-end 2009, the company reported an EBITDA and funds from operations (FFO) of approximately USD26.1 billion and USD11.3 billion, respectively, down from USD34.9 billion and USD15.9 billion during 2008. Total financial debt as of Dec. 31, 2009 increased to USD21.4 billion from USD15 billion as of 2008 as a result of debt issuance during 2009. The leverage level remains strong for the rating category with a total-debt-to-EBITDA ratio of 0.8 times (x) and a total adjusted-debt-to-EBITDAR ratio of 1.6x. Total adjusted debt-to-proved develop producing reserves (PDP) is also strong at 2.0x as of year-end 2009. Despite lower cash flow generation, capital expenditures remain high at USD15.3 billion during 2009; however, PDVSA’s total contributions to the government significantly declined to USD27.8 billion from USD53.1 billion in 2008.


Hydrocarbon reserves in the country continue to increase with proved hydrocarbon reserves of 242 billion barrels of oil equivalent (boe; approximately 85% oil and 15% natural gas) and proved developed hydrocarbon reserves of 21 billion boe as of December 2009. Since the strike at the end of 2002, reporting disclosures and corporate communications have improved and are now more consistent with pre-strike levels. Venezuela’s reported oil production has remained relatively stable during the past four years at approximately 3 million barrels per day (bpd) despite USD57.7 billion of upstream investments during the past five years, which has helped offset high decline rates.

Applicable Criteria and Related Research:

–‘Corporate Rating Methodology’ (Aug. 16, 2010).

Applicable Criteria and Related Research:

Corporate Rating Methodology