Venezuela’s efforts to restructure more than US$150 billion in sovereign and oil company debt could improve investor confidence in its energy sector, but obligations to China may complicate any final agreement, according to experts interviewed by S&P Global.
The June 12 report noted that Venezuela’s total external debt is estimated at between US$150 billion and US$200 billion.
According to Phillip Luck, Director of the economics program at the Center for Strategic and International Studies, Venezuela’s debt to China could pose a challenge to restructuring efforts, not because of its size, but because of the way it is structured.
“The loans get repaid on oil that flows through an account Beijing controls, which puts it ahead of the bondholders in any restructuring… Any IMF [International Monetary Fund] plan where debt holders have to take a haircut, and China refuses, given its position, is going to be a problem,” Luck said.
The S&P report said questions also remain over Venezuela’s obligations to China, Russia, and Iran. Gustavo García, Coordinator of opposition leader María Corina Machado’s economic team, warned that restructuring debt without first determining the full scope of liabilities could create long-term problems.
“We run the risk of, after we know the whole amount of debt and the payment conditions and so on, that the restructured debt is not sustainable because it was done without any sustainability analysis, as it should be done, with the International Monetary Fund,” García stated during a June 4 event hosted by the Pacific Council.
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He cautioned that Venezuela could be forced into another restructuring if a comprehensive debt review is not completed first.
“This is for me, personally, a serious concern,” García remarked.
According to S&P, China provided billions of dollars to Venezuela between 2000 and 2018 through oil-backed financing arrangements. While some of the crude once dedicated to those agreements is now being sold elsewhere, uncertainty remains over whether related revenues continue to service Chinese claims.
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Chinese involvement in Venezuela’s oil sector remains significant. State-owned companies maintain investments in several projects, including the Sinovensa joint venture, which produced 91,200 barrels per day (b/d) in May, according to Venezuela’s Ministry of Hydrocarbons. China Concord Resources also participates in the Lagunillas Lago and Lago V projects, which together produced more than 10,000 b/d in May.
