Sinopec sues as China loses patience with Venezuela


Financial Times (United Kingdom) – One of China’s biggest state-owned oil companies is suing its Venezuelan counterpart in a US court, in a sign that Beijing’s patience over unpaid debts is running out as the Caribbean nation falls deeper into economic and social chaos.

A US subsidiary of Sinopec is suing PDVSA, the Venezuelan state oil company, for $23.7m plus punitive damages over a May 2012 contract to supply steel rebar for $43.5m, half of which it says remains unpaid, according to court documents seen by the Financial Times.

The amount at dispute is small but it reveals a breakdown in relations of a far greater order. Sinopec agreed in September 2013 to invest $14bn in a Venezuelan oilfield, according to Rafael Ramírez, Venezuela’s oil minister at the time.

It formed part of Chinese investments and loans that added up to more than $62bn in the oil-rich nation between 2007 and 2016, according to the China-Latin America Finance Database run by the Inter-American Dialogue, a think-tank. But Caracas has struggled to repay its debts as the oil price has fallen from its 2014 peak and as production at PDVSA has dwindled.

The language of Sinopec’s complaint, filed on November 27 at a US district court in Houston, Texas, reveals how badly relationships have soured.

Sinopec accuses PDVSA of using “an undercapitalized shell with the sole purpose of preventing Sinopec from having a remedy” and says its conduct “constituted intentional misrepresentations, deceit, and concealment of material facts” involving “wilful deception” and a co-ordinated conspiracy among several units of PDVSA.

“This is when we know that China is not going to bail these guys out,” said Russ Dallen of boutique investment bank Caracas Capital, who follows Venezuela closely and who first revealed the court documents to his clients.

Sinopec’s lawyers declined to comment. PDVSA could not be reached.

PDVSA and the government in Caracas have been declared in default multiple times by rating agencies since the middle of last month after they began missing payments on their international bonds.

Mr Dallen said Sinopec’s suit added to evidence suggesting China was no longer willing to extend credit to Venezuela, and that its change of attitude had tipped Caracas and PDVSA into default.

Last year, Beijing agreed to re-negotiate its loans to Venezuela, helping it to keep up payments to bondholders. This has been a top priority for Caracas, as it feared the chaos caused by default would bring the government down.

But it has struggled to keep up its repayments to Beijing, which it makes in the form of oil. PDVSA’s financial statements show that it shipped an average of 505,000 barrels of oil a day to China last year, for a total value of $5.8bn. This was down from $8.3bn in 2015 and $14.4bn in 2014.

Analysts say these values are exaggerated as they price the oil before the discount China has negotiated, believed to be about 35 per cent on the value reported by PDVSA.

“China has stopped rolling over Venezuela’s debts,” said Mr Dallen. “They have lost faith.”

The only remaining external creditor apparently willing to support Caracas is Russia. Last month, just as Caracas was declaring default, it agreed to restructure $3.15bn of Venezuelan debt.

In a further sign of Russia’s involvement, Mr Dallen said one of his clients had received a bond payment through a Russian bank.

Fuente: Financial Times – 07/12/2017

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