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. 

21 COMMENTS

  1. The National Assembly has to make this very clear that this debt would not be recognized and would never be paid back, and international institutions need to state that they take the same view should a formal dispute arise in the future.
    Problem solved? No. But it’s worth a try.

  2. “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.”

    Upsetting? How about criminal?

  3. This is an opportunity for the National Assembly to make a forceful statement, as already pointed out by esaulgd, leaving no doubt about the illegality of any further mortgaging of national assets.

  4. To restate the comments above this is a chance for the National Assembly to show they still are a player. They must say that any debt taken on without their approval is illegal and will not be repaid.

  5. I must agree with the above sentiments. Nothing gets the attention of a debt holder like telling them you aren’t going to be repaid.

  6. Last year China made a deal with the Regime whereby payments on the principal owed China fund that year would be deferred for a year whilst maintaining the interest payments on those amounts , the money thus saved (it was China’s desire) would then be used to pay money owed Chinese commercial creditors.

    This year understand that what is being discussed is once again deferring the payment on some fund debt payable China for up to 9 years , while continuing to pay the respective interest. Maybe this would be done by exchanging old debt payable earlier for new debt payable 9 years from now , but I dont have the details.

    China is wary of providing the regime with any more loans , they are not happy about the prospects of getting paid in future as things now stand. They might allow Venezuela more time to pay but not give it any additional money.

    The Chinese are concerned that if the AN does not approve the proposed deals they run certain risks which they would rather avoid , so they would like the regime to obtain AN approvals , apparently the regime has argued as regards Pdvsa that under Venezuelan law they dont really need AN approval . The Chinese however are reluctant to proceed with the deal because they fear that whatever arguments may be made to bypass AN approval , in practice the approval is something that makes them feel that their interests are better protected …..

    Its been made public for sometime now that China as a matter of national policy is moving away from offshore loans and investments to concentrate on domestic use of their resources . They are not happy at the performance of their economic investments in Venezuela and would rather not put more of their money at risk …..

  7. Nice to see that the MUD, that controls the AN, cares so much:

    https://twitter.com/AsambleaVE/status/901229072306536449

    They care about the bond holders of course. The little people can starve, but don’t mess with my bond holders!

    And people complain about the sanctions package. It was right on the target. Ah, and the MUD wants us to vote for the bond holder’s Governors? Hah! Bunch of traitors have the blood of the victims of the regime on their hands.

      • “Asamblea Nacional: Los venezolanos no pedimos sanciones pedimos que se cumpla la Constitución y que todo contrato y toda deuda pase por la Asamblea Nacional”

        “National Assembly: Venezuelans don’t ask for sanctions, we ask that the Constitution is followed and that all contract and all debt passes by the National Assembly”.

        It was deleted, but that tweet showed up on the MUD and PJ twitter accounts.

        • The tweet deleted itself in sheer shame after it received millions of responses about the mothers of the MUD members that thought it up.

  8. Is interesting the china angle…..they seem like the only door Maduro can knock on……
    What if they don’t finance and keep them afloat?
    Even in short term..will be very telling.
    Maduro makes no payments…..settles in…full blown Dictator…….is all or nothing……..where is the street…..not a peep

  9. Well, if Maduro doesn’t care about any of this, I sure couldn’t tell from his cadena tonight. He bitched about the sanctions for a couple of hours.

  10. This is an opportunity for the National Assembly to make a forceful statement, as already pointed out by esaulgd, leaving no doubt about the illegality of any further mortgaging of national assets.
    ——————–
    As the others said, the international community consider the Maduro government illegal, meaning .national assets are not “theirs” to mortgage. Maduro is basically stealing the countries future to remain in power. Seems like MUD’s job is to make it clear that ANYONE financing Maduro these days is throwing good money after bad, that there will be no return on investments.

  11. “As the others said, the international community consider the Maduro government illegal, meaning .national assets are not “theirs” to mortgage. Maduro is basically stealing the countries future to remain in power. Seems like MUD’s job is to make it clear that ANYONE financing Maduro these days is throwing good money after bad, that there will be no return on investments.”

    I suspect the Chinese believe the dictatorship will last since it appears they’re going to continue to do business with him.

  12. There is a global chess game going on with China, Russia and the US.
    The US refusal to allow China to dominate the South China Sea infuriates Beijing. The Chinese consider this their sphere of influence.
    The same thing is occurring in Eastern Europe with Russia not wanting NATO troops on Russia’s borders.
    Supporting Maduro also supports Castro.
    The public criticism of China by Trump regarding North Korea may influence China. I don’t know which way but it still may influence them.
    This complicates the motivations of both China and Russia. The Soviet Union did not benefit for all of the years that they propped up Castro. It was just a way to needle the US until the collapse of the Soviet Union.
    In the end the people of Venezuela that are suffering and dying are pawns on this global chessboard.
    The retarded bus driver has outfoxed the MUD. Sadly the MUD is comprised of politicians rather than patriots.
    An apartheid based on political views rather than skin color has occurred in Venezuela.
    The similarities between the the apartheid of South Africa and Venezuela are many.
    Wealthy ruling class, quelling uprisings with violence, rigged judicial system, jailing opposition, restricting assemblies. prosecuting people for their political views, the majority living in abject poverty and numerous state sponsored human rights abuses.
    Perhaps a parallel grassroots campaign to isolate this government would speed the fall of the regime.
    The campaign that was used against South Africa and the current campaign by Gaza against Israel don’t lend themselves to being a model for opposition to Venezuela.
    The sanctions have shut off debt issues, the country doesn’t export anything to speak of except oil and refugees. Foreign investment has already ended.
    However, an anti-apartheid movement that had a Motto like “Free Venezuela”, if taken to the colleges and universities, the EU and other legislative bodies, could still have positive effects.
    Should the EU ban the importation of Venezuelan products, even though they may not have any members buying anything, eliminates potential markets that the regime might have looked to in the event of a US embargo. This makes access to US markets all the more important to the regime and could possibly have a sobering effect on some of the regime members. India taking these same steps would send a loud message. Prime Minister Modi is a pro western leader that seeks to expand trade exponentially with the US and the UK.
    This campaign would end the perception of the US trying to overthrow Maduro unilaterally.
    Barring military intervention or a civil war the removal of this regime is going to need unified global pressure.
    Russia and China need to be persuaded that supporting this regime is not a justified risk / reward position.
    Framing this regime as an apartheid government is simplistic in the same way that politicians name laws to make them sound more appealing, this makes the regime sound more reprehensible.

    • John – I think the deadly undermining of fact originated with Karl “The Killer” Marx and the publication of “Das Kapital”. That spread a false “philosophy”, a mental disease that led to the deaths of 100 million. And that body count continues to rise. Otherwise, yeah, it does seem to be the way you say. Some say the reaction from what is called “the right” or the “conservatives” has been dirty and has caused deaths, but it is a lot less dirty. The idea is to move towards a world where the individual is motivated by production and competition in harmony and peace – a well-umpired baseball game, where rules are know, respected, and infractions are enforced, hits and runs, as well as strikes and foul balls are called.

  13. What is really happening is that despite the pious phrase ‘the crisis can only be resolved by the Venezuelans themselves’ , the Vezuelan political crisis has as of this last year ceased to be a Venezuelan problem to become an International problem ……..the russians might be tempted to needle the US by giving some verbal support to the regime and allowing Rosnef to lend money to Venezuela as part of an investment in Venezuelan oil futures , but they know dam well that ultimately the sanctions and venezuelans own internal chaotic conditions (of which the regimes incompetence is part) does not bode well for their money to be repaid or recovered and they have their own financial problems that they will prioritize and which will limit the amount of financial help they can give the regime. They ve already received a warning from their international creditors after seeing the amount of money Spent by Rosneff on what they see as an irrecoverable disbursement in Venezuela , we cant finance you if your are going to hurt your own finances by lending or giving money to a country thats never going to pay it back…

    The russians are in a quandary , they just want to get their money back and they have no respect for the regime or its capacity to handle itself rationally so they might agree to an extention of some loans or to some very limited cash outs just for that purpose ….and they do want the regime to get the AN to approve the deal they make because they have no trust in the regimes capacity to sustain itself indefinitely…..

    Badmouthing the MUD is becoming all too popular , but they are playing a very difficult game against a rival that cheats and holds all the key cards and is not shy of using fraud and force to advance its authoritatian agenda so I think they deserve more slack …..

    • Yeah. The Russians are an interesting lot. This is just hearsay, but it ran that even back in the days of the full communist Soviet Union, the Russian gold traders were the sharpest pencils in the box (budding capitalists?).

      And your point about the MUD is spot on, imo. They are a political block – very diverse. They are not and never have been an insurrectionary force. They stand for the vote of the population. They are not an army, they do not distribute weapons, they do not call for armed force, they have no weapons, no regiments. They are not about overthrowing a legitimate government at all – they are about establishing the legitimate government voted for by the population.

      The regime is an army. The MUD is not an army, is not an armed force.

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