PDVSA is saddled with debts to contractors, which soared to $8 billion as of last September, as oil prices began tumbling. The company faces a cash flow crunch as it bankrolls the social programmes that keep leftist President Hugo Chavez popular.

"The initial idea is to carry out the issue at the end of May, but this still has to be approved by President Chavez," a PDVSA employee, who asked not to be identified, told Reuters.

The company is hunting for cash as oil prices remain below $50 per barrel following their 2008 peak near $150 and tight credit markets leave the company with few financing options.

Such issues are often attractive to local investors because they allow for the acquisition of dollars at the official rate of $2.15 per bolivar, fixed by exchange controls, compared to a parallel market that now trades near $7 per bolivar.

But buyers would likely resell them quickly at a heavy discount because because investors are often skeptical of PDVSA's financial data and most foreign observers say oil production is falling due to a lack of investment.

In 2007, PDVSA floated $7.5 billion in bonds with 10-, 20- and 30-year maturities in an oversold issue largely meant to reduce monetary liquidity in an overheated economy.

That paper, originally sold at a premium, now trades at a discount of more than 50% with yields in the double digits as the sell-off in emerging market securities and decline in oil prices have reduced investor interest.

PDVSA cannot go to US capital markets because it has stopped reporting to the US Securities & Exchange Commission.

Published: 28 April 2009 13:47 GMT  | Last updated: 28 April 2009 14:46 GMT