Rosneft leverages PdV loans for more production assets
Caracas, 10 October (Argus) — Russian state-controlled Rosneft appears to be applying a debt-for-equity strategy in Venezuela to gain significant stakes in existing and planned upstream crude and natural gas production ventures with state-owned PdV.
Rosneft and PdV currently are negotiating a deal to swap a $1.5bn loan received from the Russian company in November 2016 and guaranteed with almost half of refining subsidiary Citgo's equity for upstream crude and gas assets in Venezuela, energy minister Eulogio Del Pino said in Moscow last week. Del Pino did not disclose which PdV upstream assets Rosneft wants.
But an energy ministry official told Argus that Rosneft is looking at both upstream and downstream assets, with the aim of acquiring not only significant equity stakes but direct operational control extending from the well-head to export markets, with all related equipment and services in between.
"The Russians want more production assets in Venezuela, and they want more operational control too," the ministry official said.
"Rosneft is doing in Venezuela what Russian energy companies have done for years in eastern Europe with Vladimir Putin's support to gain significant influence over the energy sectors of many countries in that region," Caracas-based economist Robert Bottome told Argus.
Rosneft has been helping PdV pay its foreign bond maturities since early 2014, advancing PdV $3bn in the past three years, including $500mn in February 2014, another $1.5bn in November 2016 and $1bn in April 2017.
In all three cases, Rosneft's loans to PdV coincided with large foreign bond maturities owed in those months by the cash-poor Venezuelan state oil company.
PdV used the first $500mn loan from Rosneft in February 2014 to cover part of $2.3bn in bond principal and interest payments due that month. Three months later, Rosneft swapped its $500mn loan to PdV for an increased equity stake in the 140,000 b/d PetroMonagas upgrader, which rose from 16.67pc to 40pc.
In November 2016 Rosneft loaned PdV another $1.5bn as the Venezuelan company struggled to find the money to pay up to $3bn due in October and November last year. PdV collateralized the $1.5bn it received from Rosneft last November with 49.9pc of its downstream US subsidiary Citgo's equity should PdV default, causing a political uproar in Washington, DC.
But Rosneft never had any intention of retaining any Citgo equity as collateral for last November's $1.5bn loan, a ministry official told Argus. The amount of debt that PdV and Rosneft currently are in talks to swap for equity combined with Russian operational control over upstream assets totals about $2.5bn, including the $1bn loan made last April to help PdV cover $2.46bn in bond maturities due that month.
The energy ministry and PdV appear confident that Rosneft will continue its financial support as the Maduro government and PdV face $3.6bn of combined bond maturities due in October and November.
PdV owes $2.98bn or almost 83pc of the total bond payments due this month and November, including $2.24bn that come due within a seven-day window from 27 October to 2 November.
The bond maturities due on 27 October and 2 November, respectively, do not have delayed payment clauses. If PdV misses its big payment deadlines — $1.07bn on 27-28 October and $1.16bn on 2 November — automatic default clauses would be triggered.