Venezuela's restructure heightens Rosneft's $6-billion risk

By Stephen Bierman on 11/3/2017

MOSCOW (Bloomberg) -- The risks associated with Rosneft PJSC’s $6-billion advance to Venezuela’s oil company for future crude shipments have deepened after the Latin American nation announced plans to restructure crushing debts.

Venezuela’s President Nicolas Maduro said on Thursday he would seek restructuring of sovereign debt, but his government will still transfer funds for a $1.1 billion principal payment on bonds from Petroleos de Venezuela SA, the state-run oil producer. While this means there may not be an immediate impact on PDVSA’s obligation to repay Rosneft with oil deliveries, the move increases doubts about the arrangement, said Alexander Burgansky, an oil analyst at Renaissance Capital.

“It may be increasingly more difficult for Rosneft to see these funds returned, in case of Venezuela default,” Burgansky said by email. “This is why in our valuation model for Rosneft we have already conservatively written off these amounts.”

Others analysts saw a lower risk of a financial dispute arising between two countries that have developed a significant political alliance. PDVSA will find a way to keep paying Rosneft, said Andrey Polischuk of Raiffeisen Centrobank AG and Artem Konchin of Otkritie Capital.

Russian support

While Venezuela’s other international partners, including companies from China and India, have recently avoided involvement in new loans, Moscow has taken a friendlier approach. The South American country pumps about half as much oil as Rosneft, but has nevertheless become the Russian company’s biggest overseas investment destination for exploration and production. By paying in advance for crude deliveries, it’s provided crucial funds amid an economic crisis.

Rosneft and Venezuela will find an amicable solution, said Konchin. “At current stage we do not apply any discounts to prepayments” because PDVSA is able to fulfill obligations to Rosneft, said Polischuk.

Still, Rosneft’s appetite for further financial exposure to Venezuela has waned and the company has said it doesn’t plan any further prepayments for crude supplies. Venezuelan Oil Minister Eulogio del Pino repeated that the sides weren’t negotiating any additional pre-payments as part of a visit by Maduro to Russian President Vladimir Putin last month in Moscow.

Rosneft’s press service didn’t immediately respond to a request for comment on Friday. The company’s First Vice President Pavel Fedorov said in August that he was fully confident of receiving the contracted oil supplies.

As collateral for $1.5 billion of the outstanding loans, PDVSA offered Rosneft a 49.9% stake in its U.S. refining and marketing subsidiary Citgo. In the event of a default, taking possession of this collateral would face significant political obstacles. In September, senators Bob Menendez and Marco Rubio sent a letter to Treasury Secretary Steve Mnuchin seeking assurances that Rosneft wouldn’t gain the stake in the refiner.


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