Venezuela, Russia Agree to Restructure Debt as China Voices Confidence in Caracas

Bogota, November 16, 2017 (venezuelanalysis.com) – Venezuela and Russia finalized a deal Wednesday to restructure USD$3.5 billion worth of debt held by Moscow. 

According to a press statement from Russia’s Finance Ministry, a new payment schedule has been agreed for the next decade, with “minimal” quotas to be made in the first six years. 

The Russian ministry says that the debt relief will allow the Venezuelan government to “assign funds to the economic development of the country, improve the debtor’s solvency and increase the possibilities that creditors are paid back credit lent to Venezuela”. 

At the beginning of November, Russian Finance Minister Anton Siluanov confirmed that both governments had reached an agreement on restructuring Venezuela’s debt, though he did not offer details. 

The renegotiated debt payments are a much-needed lifeline for Venezuela, which is facing increasing difficulty in servicing interest on both its sovereign and state oil company (PDVSA) bonds. The country has been hit by an acute economic crisis since 2014 due to a severe drop in global oil prices, while its situation was compounded this past August when the US approved economic sanctions targeting Caracas. 

Rumors that the Nicolas Maduro administration could be unable to make payments on its debt obligations have intensified since the beginning of the month when the head of state announced that his government was seeking to restructure its foreign debt. 

On Monday, government ministers met with over 400 representatives of international credit organizations to discuss possible renegotiations. Though no details were released, the government described the meeting as a success in an official statement.  

The top-level consultation took place despite warnings from the US Treasury to creditors last week that it would be extremely “problematic” for US financial institutions to attend. Any agencies thought to be breaking US economic sanctions against Venezuela could face heavy corporate fines and jail time of up to ten years. 

Monday’s meeting was held on the same day that credit ratings agency Standard & Poor’s declared Venezuela to be in partial default, saying that it had failed to make $200 million in repayments on its foreign debt within a thirty-day grace period. 

“Our CreditWatch negative reflects our opinion that there is a one-in-two chance that Venezuela could default again within the next three months,” said S&P.

Last Friday international press reported that Venezuela’s state-owned energy utility CORPOLEC had defaulted on a bond interest payment worth more than USD$650 million. Venezuelan authorities later responded that the payment had been made but arrived late.

The Venezuelan government has since reiterated its commitment to making foreign debt repayments, while state oil company PDVSA confirmed Wednesday that it had made payments on a string of its bonds.

“We inform that the payment for interest on the bond PDVSA 2027 had been made, and we clarify, for the international financial market, that the capital payments on  PDVSA 2017 and 2020 were also carried out successfully,” reads a statement published by the state firm on Twitter.

Despite S&P’s downgrade of Venezuela, the government’s key ally in Beijing has voiced confidence in the Maduro government’s ability to make debt repayments on time. Though China has reportedly made no offer of debt relief to Venezuela, Foreign Ministry spokesperson Geng Shuang reiterated to press Thursday that his government believed Venezuela was “capable of adequately managing the debt problem”.

“We hope that the parties involved can settle the matter through consultation. At present, financial cooperation between China and Venezuela continues as normal,” he added. 

Venezuela is estimated to owe USD$9 billion to the Russian government and its state-oil company Rosneft, as well as $23 billion to China.