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.
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“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.
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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.
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.