Friends of Igor Sechin from Venezuela on the verge of bankruptcy

The Venezuelan partner of Rosneft - PDVSA - can not pay its debts.
The state oil company of Venezuela PDVSA, which is a major partner of Rosneft, is on the verge of default, which may be announced this week. Cross-default can affect all international financial obligations of PDVSA by $ 40 billion, which is likely to entail the actual default of Venezuela. In the opinion of Kommersant's interlocutors, loans for $ 6 billion provided by Rosneft to PDVSA, as well as $ 1 billion, from Gazprombank are of lesser danger, since they were granted for oil supplies. The sovereign debt of Venezuela Moscow has already agreed to restructure.

The International Association of Swaps and Derivatives (ISDA) reported that on Friday it will consider the "credit event" of the Venezuelan state-owned company PDVSA, which, according to preliminary data, has not fully paid out a $ 1.17 billion tranche for bonds with redemption on November 2. The grace period for bonds has expired, that is, the case can be regarded as a default. If the ISDA recognizes the fact of default, owners of credit default swaps (CDS), derivatives issued under PDVSA bonds, will be able to obtain insurance. For owners of the bonds themselves, another procedure for recognizing a default, it can last longer. Theoretically, it is possible that the default has not yet occurred, but money has not reached the holders of securities, because due to new US sanctions against Venezuela, PDVSA payments go with numerous checks, and the settlement bank for this issue of bonds is American JP Morgan.

But if the default did happen, then, according to Reuters, it should lead to a cross-default on all international issues of PDVSA. According to the company's financial statements, as of the end of 2016, its debt was $ 40.4 billion, and about $ 20 billion was liabilities on prepayment for oil. This situation did not come as a surprise to the market - at the end of last week, Fitch and Moody's downgraded the PDVSA to pre-default levels, similar to those of Venezuela's sovereign rating.

This was followed by a statement by the President of the country Nicholas Maduro on the need to restructure both the PDVSA debt and Venezuelan sovereign debt after the tranche of bonds for $ 1.2 billion (which, apparently, could not be fully paid). This market reacted negatively: most of the debts of both Venezuela and PDVSA - from US banks, and US sanctions prohibit them even negotiations on restructuring. "De facto, this was a declaration of default," an analyst of one of the investment banks told Kommersant.

The largest Russian investor in Venezuela and the creditor of PDVSA is Rosneft (see chart). So, in 2015-2017, it provided PDVSA $ 6 billion as an advance payment for future oil supplies, in August Rosneft officials said that $ 1.2 billion had been paid off (these payments were not separately indicated in the accounts), and full repayment is expected before the end of 2019 of the year. On Thursday, Rosneft declined to comment. Kommersant's interlocutors on the market believe that PdVSA will continue to supply Rosneft's oil even in the event of a default, because "there is no one to count on Venezuela". In their opinion, the PDVSA is unlikely to insist on restructuring the prepayment, since then Rosneft could reduce activity on the development of projects in Venezuela and the country's budget will not receive bonuses and other mandatory payments from the company. A similar situation with a $ 1 billion loan from Gazprombank, issued in 2013 for the development of a joint venture with PDVSA Petrozamora, is also in the form of a prepayment for oil. The bank did not give a comment. As for Russia's $ 4bn sovereign credit granted in 2011, Finance Minister Anton Siluanov said last week that Russia is ready to restructure its balance (less than $ 3bn, it is not known exactly). The Finance Ministry also does not comment on this.

A pledge for Rosneft's loan of $ 1.5 billion is also provided by 49.9% of the US structure PDVSA Citgo (owns a number of refineries and a network of filling stations). The head of Rosneft Igor Sechin in October called the pledge "technical", explaining that "it would be foolish to assume that we need this asset when we are in a state of sanctions (US-Kommersant)." At the same time, the other 50.1% of Citgo are pledged to PDVSA bond holders, and in case of default they can recover this asset, while Rosneft is likely to have problems with this.

Kommersant's interlocutors note that while Rosneft looks more protected in case of a PDVSA default than bondholders, the plight of Venezuela is likely to force the company to continue injecting into the country. "If there is a coup in Venezuela amid an economic crisis, Rosneft risks losing all its investments," one source at Kommersant notes. In August, Pavel Fedorov, First Vice-President of the company, said that "there are no plans to implement any (new.-K") prepayments, but everything can change depending on the situation with our counterparty. "

The procedure for default on bonds should lead to the formation of a club of major creditors, which will negotiate with PDVSA and the government of the country on restructuring, says LECAP partner Dmitry Krupyshev.

Although US sanctions prohibit such talks with a number of large creditors, they can lead them through intermediaries, he believes. If the parties do not reach an agreement, creditors can seek the arrest of foreign assets of PDVSA - refineries, refuellings, tankers and oil - in court.