<article><p>The struggling Venezuelan government is looking to raise cash to offset plunging oil revenue by selling part of its accounts receivable associated with its PetroCaribe oil supply program at a steep discount.</p><p>In related multiparty transactions currently under discussion, US bank Goldman Sachs would buy the Dominican Republic´s $4bn debt that it owes Venezuela´s state-owned oil company PdV for $1.7bn, and likely issue a corresponding bond at an annual rate of up to 11pc, according to executives and officials close to the negotiations. </p><p>The Dominican Republic, one of the main beneficiaries of Venezuela´s PetroCaribe regional oil supply program, has accumulated debt of about $7bn plus over $4bn of PetroCaribe debt, totaling $11bn or roughly 200pc of the country´s GDP.</p><p>By selling the $4bn in obligations to Goldman Sachs, the Dominican Republic improves its overall debt profile and brings down yields on its total bond debt, lowering interest costs.</p><p>PdV gets $1.7bn in cash now and removes $4bn of Dominican Republic PetroCaribe debt it likely never would have collected fully anyway. </p><p>The transaction would improve PdV's cash balance. Still, it would not put more than a dent in PdV's overall financial debt, which is now about $50bn, not including debts owed to contractors and suppliers, joint venture partners and pending compensation awards associated with international arbitration.</p><p>Goldman Sachs is also discussing the possible discounted purchase of Jamaica's $3bn in PetroCaribe debt to Venezuela.</p><p>PdV and Goldman Sachs declined to comment.</p><p>The potential transfer of the debt obligations illustrates the dire state of Venezuela´s oil-based economy.</p><p>PetroCaribe, founded in 2005, allows member countries to buy Venezuelan crude and oil products on preferential terms, including barter arrangements.</p><p>Under the program, PdV supplies a total of around 200,000 b/d of crude and refined products to member countries. Around half of this goes to close ally Cuba, which has separate bilateral arrangements with Caracas.</p><p>Despite the program´s soft commercial conditions, member countries have accumulated debts to Caracas that totaled nearly $14.5bn at the end of August. The Dominican Republic, Jamaica and Nicaragua accounted for roughly a combined $10bn or almost 79pc of the total.</p><p>PdV´s negotiations with Goldman Sachs to sell about half of its PetroCaribe debt portfolio at a substantial discount reflect its critical cash flow deficit resulting from a steep decline in the value of its oil exports.</p><p>Venezuela´s economy is expected to contract by around 4.5pc in 2014, and 70pc annual inflation could balloon to more than 100pc next year.</p><p>The average price of PdV's oil exports has plummeted to around $63/bl from a monthly average of $99.11/bl in June.</p><p>PetroCaribe members are allowed to finance up to 50pc of the oil shipments received from PdV for up to 25 years at annual interest of 1-2pc. </p><p>PetroCaribe members can also pay their oil-related debt in non-oil goods like agricultural products. PdV to date has received over $3bn of payments in mostly agricultural products, energy ministry figures show. </p><p>Audits commissioned by the energy ministry show that the price values attached to these agricultural goods tend to be up to 100pc greater than open market prices for comparable goods. </p><p>PdV is accelerating its efforts on several fronts to generate more cash quickly, the energy ministry said.</p><p>"Venezuela's government is having a fire sale on oil and other assets. Anything that isn't nailed down is fair game," a US bond trader with direct knowledge of PdV's plans tells <i>Argus</i>.</p><p>PdV has been trying to sell its US downstream subsidiary Citgo and other overseas assets, and Caracas is looking for more loans from China.</p><p>Venezuelan President Nicolas Maduro today ordered an immediate 20pc reduction in government spending.</p><p>The Venezuelan central bank estimates that every $1/bl decline in PdV's average export price reduces annual hard currency revenues by $620mn. </p><p>PdV generates over 95pc of Venezuela's annual hard currency revenues.</p><p>The central bank estimates that the government needs a minimum annual oil price of $80/bl to cover its $177bn budget needs in 2015 without borrowing locally, and at least $117/bl to supply the country's hard currency needs including debt servicing and imports.</p><p>js/pg</p><p> Send comments to <a href="mailto:feedback@argusmedia.com" target="_parent"> feedback@argusmedia.com </a></p><br><br><p> If you would like to review other ArgusMedia.com content options, <u><a href="http://info.argusmedia.com/mailers/News/sectortrial.html?ref=webnews" target="_TOP"> request more information </a></u> about Argus' energy news, data and analysis services. </p><p><i> Copyright © 2014 Argus Media Ltd - <a href="http://www.argusmedia.com/" target="_TOP"> www.ArgusMedia.com </a> - All rights reserved. </i></p></article>
