Venezuela's oil for loan deal with China leaves little room for cash flow from exports

Oil Price:

Venezuela’s debt crisis is only expected to grow worse this year, and the government could be without one of its most important benefactors, raising the odds of yet another default.

China has sent around $50 billion to Venezuela over the years, loans that were repaid in oil shipments. China needed oil and Venezuela needed cash, and the relationship worked for a period of time. But as Venezuela’s economic situation took a turn for the worse, China slowly backed away. Or, more accurately, China allowed Venezuela more lenient repayment terms while at the same time slowly closing the door on new loans.

According to a new Reuters report, with an agreement expiring this year, China will likely extend a financing arrangement that has already been in place that stretches out Venezuela’s debt payments. With little to no cash on hand, China is allowing Venezuela to only pay interest on its debt.

However, while that arrangement will continue, Reuters reports that China will likely cut off Venezuela from new loans. “Given Venezuela’s falling oil production, it’s natural for Chinese banks not to renew loans,” a source within the Chinese oil industry told Reuters.

Much of Venezuela’s oil is still earmarked for these obligations, which means that Caracas is not taking in any revenues from those exports. Reuters says that Venezuela still owes China $19.3 billion, half of which originated from a 2010 deal. The problem for Venezuela is that the principle on these payments is not declining since only interest payments are being made.

The odds of repayment are shrinking. The Venezuelan government has less than $10 billion in cash reserves, with maturing debt payments this year that exceed that level. Moreover, Venezuela’s oil production is in freefall, and because China lays claim to a large slice of that output, dwindling output means an ever shrinking source of revenue. China is unlikely to be repaid, but it will continue to take as much oil as it can while it still can.

Venezuela sends about 500,000 to 600,000 bpd to China and Russia as repayment for past loans, according to The Atlantic Council. Another 400,000 to 450,000 bpd is sold domestically at rock bottom prices at a loss for PDVSA. That leaves only about 850,000 bpd that Venezuela can earn revenues from, a figure that could continue to fall this year.
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There is more including a summary of the bad deal Venezuela made with Russia that will probably lead to losing more assets.

Maduro may be the most mentally challenged man to ever lead a country and he is leading it into bankruptcy and insolvency.  China is unlikely to extend more credit and Russia even with its asset claims will also probably lose money on the loans made to Venezuela.  Venezuela looks like it close to rock bottom and still digging.