FertiNitro bondholders gird for battle following nationalisation

15 October 2010 22:45  [Source: ICIS news]

CARACAS (ICIS)--Investors who bought bonds to finance FertiNitro’s urea and ammonia production facility in Venezuela are considering forming a bondholder’s group following the government’s announcement that it was unilaterally taking over the project, a bond broker said on Friday.

“Several holders of FertiNitro bonds have contacted us and requested assistance in forming a FertiNitro bondholder group,” said the Caracas-based broker.

Bondholder groups are typically formed to represent bondholder interests as they negotiate with the company in which they are holding debt. Usually, bonds are issued with a change of ownership covenant, which specifies that the owners pay off bondholders who do not want to continue holding the company’s debt under the new structure. 

Bondholders were fully compensated in 2007 when Venezuela expropriated ExxonMobil’s and Conoco’s heavy-oil projects. However, Venezuela’s financial position has steadily deteriorated since then.

“The situation may be a little different this time, in that the cupboard at PDVSA and the Central Bank is bare, so a favourable outcome for bondholders may be less likely,” said the broker.

Fitch Ratings, in a report issued at the end of September, maintained its “CCC” rating with a negative outlook on the fertilizer company’s $250m (€179m) bonds. At the time of the report, Fitch noted that FertiNitro was up-to-date on its debt service requirements. 

FertiNitro is one of the world’s largest nitrogen-based fertilizer plants. Prior to the nationalisation, Pequiven and US-based Koch Industries each owned 35% of the joint venture.

It was one of the few remaining joint ventures that had emerged in the 1990s, when Venezuela had opened its petroleum industry to foreign investment.

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By: Jasmina Kelemen
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