Venezuela looking for relief from its China loan for oil deal

Reuters:
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Venezuela is in talks with China to obtain a grace period in its oil-for-loans deal that would improve the OPEC nation's capacity to make bond payments amid an economic crisis, sources briefed on the proposal have told Reuters.

Venezuela has borrowed over $50 billion from China under the financing arrangement created by late socialist leader Hugo Chavez in 2007, in which a portion of its crude and fuel sales to the world's second-biggest economy are used to pay down loans.

The two-year rout in oil markets has left the government of President Nicolas Maduro struggling to meet the original terms of the agreement, which require that state oil company PDVSA set aside more barrels for debt services when prices fall.

Venezuela is now seeking a one-year grace period in which it would only pay interest on the loans, according to two oil industry sources and one finance industry source who asked not to be identified because they are not authorized to speak about the issue.

The sources said state oil company PDVSA would receive cash payments for shipments that currently go to pay principal. The change would improve PDVSA's 2016 cash flow by $3 billion if it took effect this month, two of the sources estimated.

That would make it easier for PDVSA to meet heavy bond payments this year amid an ongoing collapse in a socialist economy facing Soviet-style scarcity and daily food riots. It could also ease investor concerns of a default that have made its paper the riskiest of any emerging market debt.
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As the price of oil dropped the amount that needed to be shipped to China increased dramatically.  About 45 percent of the country's exports are used to pay down the debt, which adds more pressure to their cash flow problems.

The country's falling output despite huge reserves is also tied to its cash flow problem.  Its heavy crude must be diluted with lighter oil and it apparently cannot afford to pay for the light oil it used to get from Nigeria.  It has gotten some shipments from the US, but not enough to make up the difference.

Socialism is a failed economic system.  In the hands of incompetent leadership it can make the resource rich very poor.

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