Caracas weighs PdV successor, free of debt

Venezuela's constituent assembly is proposing to replace state-owned oil company PdV with a new national energy company that would inherit everything but PdV's mounting debts.

The new company, tentatively called the Venezuelan Energy Corporation (CVE), would be tasked with developing export-oriented energy projects on its own and through joint ventures with foreign partners, says economist David Paravisini, who chairs the national constituent assembly's (ANC) petroleum, gas, energy and water subcommittee.

The ANC is a rubber-stamp body that Venezuela´s president Nicolas Maduro installed to replace the opposition-controlled national assembly in July 2017.

Under the proposal, CVE would absorb all of PdV's administrative, operational and physical assets, including PdV´s US refining subsidiary Citgo, but not its liabilities. These include debts owed to bondholders, joint venture partners, suppliers and other creditors.

PdV stopped paying interest and principal on all outstanding bond debt in September 2017 except for a $3.4bn PdV 2020 bond that is collateralized with 50.1pc of the shares in Citgo's indirect parent firm, Delaware-based PdV Holding. Combined PdV and government bond arrears currently total about $7bn.

Looming on 27 October is PdV´s obligation to pay over $950mn of principal and interest due on the 2020 bond. PdV assured bondholders last week that the payment would be made on schedule. In the meantime, Citgo, considered PdV´s most valuable asset, is subject to a separate lien by former Canadian mining firm Crystallex over an unpaid arbitration claim.

If PdV falls further behind on its debts, the CVE proposal could be a strategy to cushion the blow from the potential loss of Citgo and to spin off liabilities, possibly by formally declaring the bankruptcy or dissolution of PdV, a scenario that has been discussed in the international financial community for months.

A US-based financial sector executive close to bondholders tells Argus that the move would be "tossed out in any court outside of Venezuela" because a company cannot transfer all of its assets to a new entity without transferring the liabilities as well. "You can´t escape the debt in this way," the executive said.

According to an ANC official with direct knowledge of the proposal, "CVE's creation to replace PdV could be a new beginning for Venezuela's oil industry without the burdens of debt, corruption and deteriorated assets that currently characterize PdV. As CVE absorbs the country's energy companies and PdV is phased out gradually, its debts would be settled fairly as the company moves towards dissolution."

CVE would go beyond PdV to absorb the physical and human assets of other state-owned energy firms such as power utility Corpoelec, coal producer Carbozulia and petrochemicals manufacturer Pequiven. "CVE would be an integrated energy corporation, a single entity responsible for all of Venezuela's energy resources," the official told Argus.

The consolidated approach would eliminate administrative and management redundancies; concentrate financial resources; and centralize long-term strategic planning, project execution and procurement into a single entity, the ANC official said.

PdV was incorporated in 1975, a year before then-president Carlos Andres Perez nationalized Venezuela's historically foreign-owned oil and gas industry. The company has an estimated $22bn in liabilities, although precise data is unavailable because no 2017 external financial audit was conducted.

It is unclear if the CVE proposal is supported by the ANC's top leadership. ANC president Diosdado Cabello, who is widely viewed in Venezuela one of the three most powerful individuals in the ruling socialist party hierarchy alongside Maduro and economy vice president Tareck El Aissami, is currently overseeing a secretive process to draft a new constitution to replace the 1999 Bolivarian constitution authored by late president Hugo Chavez.

The Maduro government hopes to secure popular approval via referendum for its proposed constitutional reforms before 10 January 2019. The CVE's proposed creation could be part of those reforms.

A presidential palace official confirms that there is "some internal discussion" about creating a new company to replace PdV, adding that any such decision would require approval by the political factions headed by Maduro and his spouse Cilia Flores, Cabello and El Aissami.

The armed forces, which already have an industry foothold through the military-run Camimpeg oil, gas and mining company, also would play a major role in this decision, the palace official added.