Venezuela exposed by looming debt payments

Venezuela's government and state-owned oil company PdV have combined debt of more than $3bn due before the end of 2018, an amount equivalent to more than a third of the central bank's hard currency reserves of $8.44bn.

Both are already in default on $6.4bn in sovereign and corporate debt accumulated over the past year. Four financial sector executives consulted by Argus say the government will accumulate more arrears during the rest of the year as PdV's production continues to decline, although part of the payments could be made.

The Maduro government theoretically could tap the bank´s reserves to cover its fourth quarter debt maturities. But with the bank's liquid cash reserves presently totaling a little over $1bn, some gold holdings would have to be sold to secure the cash needed to pay all bond debt and other liabilities due over the next 90 days.

Gold accounts officially for almost three-quarters of the bank's reported hard currency reserves, but it is unclear if all of the reported gold assets are under central bank control. Two former bank economists believe the government has secretly shipped up to 200 tons of the bank's gold out of the Venezuela since 2016. Current bank officials declined to comment, citing national security.

Oil exports account for over 95pc of Venezuela's annual hard currency revenues, and international oil prices have strengthened in recent months. But Venezuela´s tumbling production has cancelled out any gains from rising prices.

PdV's weekly average export price reported by the energy ministry climbed to just over $73/bl as of 28 September 2018 compared with an average of $50/bl a year earlier. In the same period, crude output declined to about 1.2mn b/d in September 2018, from 1.95mn b/d in September 2017, according to Argus estimates and official production data communicated directly to Opec by the energy ministry.

The crisis has driven the Maduro government to plead for more financial support from Beijing and Moscow. China recently committed to a series of joint ventures in Venezuelan oil and minerals, but has resisted Venezuela´s petitions to reschedule oil-backed debt.

The government this week launched a redesigned version of its petro, a controversial financial instrument that it is calling it a "digital currency" whose value will be set by a weighted basket of Venezuelan commodities that includes oil, gold, iron ore and diamonds. The instrument is widely seen as a hollow and likely fraudulent way for the government to get around its financial crisis.

Venezuela´s looming debt obligations include $500mn that PdV pledged to pay US independent ConocoPhillips before the end of November, the first installment on a $2bn settlement of an arbitration claim stemming from the 2007 takeover of the US company´s Venezuelan assets.

If PdV does not meet the payment, it risks the restoration of judicial seizures of its Dutch Caribbean oil assets that ConocoPhillips lifted after the settlement was reached in late August.

Combined sovereign and PdV bond maturities totaling $1.598bn are due in October, including an $842mm amortization payment and an associated $107mn interest payment on a PdV 2020 bond, both due on 27 October. The principal payment has no grace period, but the interest payment has a 30-day window.

The PdV 2020 bond is backed by 50.1pc of the shares in PdV Holding, the indirect parent of PdV´s US refining subsidiary Citgo. This is the only bond that PdV and the government have honored since falling behind on the payments a year ago.

The other 49.9pc of PdV Holding is pledged to Russia´s state-controlled Rosneft for a 2016 oil-backed loan of $1.5bn.

Combined sovereign and PdV debt maturities in November total a further $1.22bn, followed in December by over $242mn more, according to Caracas Capital Markets.

Caracas blames US financial sanctions, first imposed in August 2017 and since tightened to close loopholes, for cutting off its access to capital. The sanctions were extended in March 2018 by the US Treasury to include the petro in all its variations.