(Adds bond prices, trader comments, background)
CARACAS, Oct 26 (Reuters) - Bonds issued by Venezuela and state oil firm PDVSA dropped sharply on Thursday amid concerns that cash-flow problems and regulatory hurdles may leave PDVSA unable to make a major bond payment due on Friday.
PDVSA's 2017N bond was down 5.525 points to a bid price of 88.500, while Venezuela's 2022 bond fell 3.550 points to a bid of 49.787.
PDVSA on Friday faces an interest and principal payment of $985 million on its 2020 bond.
The company is already late on coupon payments for several of its bonds including those maturing in 2027 and 2037, which has spurred investor nervousness this week over its capacity to make payments.
Three traders holding PDVSA's 2037 bond said that they had been informed that the oil firm made the payment, but that the funds were not appearing in their accounts.
They said they did not know the cause of the payment delay.
That has fueled concerns that regulatory hurdles caused by U.S. sanctions are creating unexpected delays.
The Trump administration has hit Venezuela with several rounds of sanctions this year, accusing socialist President Nicolas Maduro and his allies of human rights violations and of undermining democracy.
Those sanctions specifically allow banks to carry out basic operations such as bond payments.
But market sources say banks have become much more wary of being involved in any Venezuelan transactions and have sought greater documentation for routine operations.
If PDVSA does not make the principal payment on the 2020 bond by Friday night, it would be in default.
PDVSA and Venezuela's Information Ministry did not immediately respond to emails seeking comment. (Reporting by Brian Ellsworth, Corina Pons and Alexandra Ulmer; Editing by Andrew Cawthorne and Paul Simao)