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Petrozuata C.A.
THULIKA GAMBIR
SMITHA SAHA
VIGNESH SANGAMESWARAN
STUTI RELAN
VAIBHAV VARSHNEY
TIMELINE
1998 - Dupont
sold Conoco
and first set of
cost overruns
1999 - Second
cost overruns
1976 Venezuelan
government
nationalizes
interests of oil
companies
and forms
PDVSA
CONOCO
(50.1%)
PDVSA
(49.9%)
$1.450
billion
DEPT
Petrozuata
Debt Ratings
An evaluation of the possibility of default by a bond issuer
It is based on an analysis of the issuer's financial condition and profit potential
Main providers: S&P, Moodys, Fitch
AAA highest possible rating
D Default
<BBB junk bonds
Venezuela
Long term: B Short term: B
All costs (ie: water, electricity and gas) are also under
long-term contracts, except labor (but it only
represented a small fraction of total cost)
Conoco & PDVSA guaranteed to pay project expenses,
including any unexpected cost overruns
Involves syndicates
Equity
Commercial
banks $450
Bond investors
$1000
Total
$1450
$975
Total investment
$2425
Using bank debt, Petrozuata could draw on its credit line as needed, matching
its cash flows
Using public bonds on the other hand would provide longer maturity, fixed
interest rates, more flexible covenants and larger amounts of borrowing
However public bonds would have to be raised in lump sum amounts to the
extent that the excess funds would create negative carry
Rule144A bonds had all the advantages of public bond, plus they are faster to
acquire (6 months) and require less initial and ongoing disclosure
The main disadvantage of Rule144A bonds in addition to the ones same as
public bonds, only qualified institutions were able to get it, which meant less
liquidity for the issuance and Petrozuata would needed investment-grade rating
Given the speed and flexibility of the process, Rule144A bonds were the most
appealing financing