Venezuela faces a mountain of bills, all coming due at once. Together, the Republic and PDVSA have to pay $4.7 billion in principal and interest by the end of the year. Despite its famous “suicidal willingness to pay”, the government has not been able to gather all the money needed for debt service this year and is frantically looking for options to get it. Now, given the just-announced U.S. sanctions, that looks even harder.
But according to reports circulated on Thursday, there’s a sliver of a chance of making the payments after all, and it’s a sliver that has Made in China written all over it. And, as usual with chavista financial transactions, the details are scarce and the implications worrisome.
There are not many details about the proposed transaction. The rumor just stated that they seek to buy the closest-to-maturity bonds (2017 and 2018 bonds issued by both Venezuela and PDVSA) which then would be swapped by longer-term PDVSA bonds due in 2037 and 2047. There are no details about the exact bonds that will be repurchased or the terms of the new ones that will be issued (expect credit card interest rates) or which will be the Chinese entity signing the deal.
According to the reports, the deal is being negotiated on the Venezuelan side by PDVSA CFO and newly minted OFAC sanctionée Simón Zerpa. Simón is said to be very close to Nicolás Maduro and Cilia Flores since at least 2013, when he served as a Vice President for Bandes during Temir Porras’s tenure. His experience doing business with the Chinese has been cemented in its current triple-post of President of Bandes, President of Fonden (both positions held since 2014) and his PDVSA gig (since early 2017). To boot, his father, Ivan Zerpa, has been the Venezuelan ambassador for China since 2013.
Talk about an enchufado.
Zerpa has his work cut out for him in Beijing. The biggest problem is for PDVSA. The company has to make principal and interest payments of over $3 billion for by the end of the year (including a head-turning $2.85 billion payment in November) and rumor has it that they’re $2 billion short of that.
PDVSA has tried to calm down investors saying it will pay, but Venny bondholders know very well that “deseos no empreñan.” Besides, the cold hard facts are out there: their own financial statements paint a picture of such dysfunction, it’s hard to imagine who’d trust their creditworthiness anymore.
What about international reserves? Well, Reuters reported a few days ago that the Venezuelan Central Bank currently has $2 billion available in cash. That’s enough to make the $1.3 billion bond payments of the Republic due by the end of the year, and to cover imports of food and medicine for the same period, but those two things would leave no cash to service PDVSA bonds debt payments. Could they sell gold? They could, but they haven’t.
PDVSA has to make principal and interest payments of over $3 billion for by the end of the year… and rumor has it that they’re $2 billion short of that.
Due to the recent formalization of a dictatorial regime in Venezuela and the PR disaster that the hunger bonds deal turned out to be for Goldman Sachs, it’s pretty much a given that usual financial institutions will not be helping the government to sort this one out. We recently found out that the government had secured funds for bond payments by taking the multi-million dollar equivalent of payday loans from Russia during 2016 and 2017.
But now even Russia is tapped out, so they’re going back to an old creditor who’d cut us off some time ago.
The deal is being negotiated on the Venezuelan side by PDVSA CFO and newly minted OFAC sanctionée Simón Zerpa.
The reports mention that the government is also negotiating the “re-strengthening of the basic industries of iron, steel and aluminium” which is a pretty way of saying that they are willing to give away the basic industries of Guayana to the Chinese under only-God knows what terms just to make this deal happen.
Geopolitically, this is some heavy stuff.
The American sanctions announced today leave Venezuela hurting for patrons. But for a deal like this to go through, Chinese policy towards Venezuela would have to do a 180. Last year’s government efforts to procure financing from China fell through, it was reported that the Chinese government was worried about debt repayment, thus, it had decided not to pen these types of deals anymore and was even making inroads with the opposition thinking about a future transition.
Even if the Chinese go for it, would this work for Maduro? Maybe, but only for a little while. If successful, the deal would only get the government around USD 2.4 billions that would allow them to correr la arruga just for a few months. The days of the getting $63 billion loans from China are long gone.
Now, Venezuela is reduced to pawning away what’s left of the country’s assets for peanuts just to stay in power a bit longer. It’s very upsetting.