CDB reschedules $19 billion of outstanding debt via grace period extension in August 2020 (Linked to Project ID#35985, #37804, #37838, #37528, #38380, #38163, #39099, #37808, #38316, #58377)

On November 6, 2007, a six-party framework agreement for the establishment of the Joint China-Venezuela Fund (JCVF) — known in Spanish as the Fondo Común China Venezuela (FCCV) — was signed. The agreement, which is also referred to as the Sino-Venezuelan inter-governmental agreement, was subsequently published in the Venezuelan Official Gazette (No. 39,019) on September 18, 2008. It was designed to govern three agreements: (1) a four-party agreement between China Development Bank (CDB), Banco de Desarrollo Económico y Social de Venezuela (BANDES), China National United Oil Corporation (CHINAOIL), and Petróleos de Venezuela, S.A. (PDVSA); (2) an oil-backed, $4 billion loan (facility) agreement [also known as ‘Tranche A’ under the JCVF or Heavy Fund I (Fondo Pesado I in Spanish)] between BANDES and CDB; and (3) a Petroleum Sales and Purchase Contract between PDVSA and CHINAOIL. Under the third agreement, the Petroleum Sales and Purchase Contract, PDVSA agreed to sell on behalf of the Venezuela Government, based on a pre-agreed pricing formula, 100,000 barrels of fuel and/or crude oil per day to CHINAOIL (a subsidiary of CNPC) until the full repayment of all amounts due in connection with the second agreement, the CDB-BANDES facility agreement. CHINAOIL agreed to make payments to PDVSA due under the Petroleum Sales and Purchase Contract by depositing U.S. dollars in a CDB-controlled bank account (that was opened on behalf of BANDES to facilitate its loan repayments to CDB). The $4 billion, oil-backed CDB loan (facility) carried the following borrowing terms: a 3-year maturity (extendable/renewable for up to 15 years) and an interest rate of LIBOR plus a 2.5% margin. The borrower was responsible for making quarterly principal and interest payments to the lender. It was also responsible for maintaining a minimum cash balance (worth approximately $680 million) in the CDB-controlled bank account as a source of cash collateral. According to a Venezuelan Government filling with the U.S. Securities and Exchange Commission (SEC), the ‘Tranche A’ loan achieved a 100% disbursement rate and was fully repaid by the borrower by the final maturity date of November 2010. In total, the borrower made repayments worth approximately $4.1691 billion ($4 billion of principal and $169.1 million of interest). Venezuela’s National Development Fund (FONDEN) was expected to contribute $2 billion to the JCVF alongside the $4 billion Tranche A loan from CDB, bringing total JCVF contributions from the two governments to $6 billion. Then, on February 18, 2009, the JCVF framework agreement was amended to ‘upsize’ the JCVF from $6 billion to $12 billion (with CDB issuing a second $4 billion loan known as ‘Tranche B’ and FONDEN making another $2 billion counterpart contribution). The amended agreement was published in the Venezuelan Official Gazette (no. 39.183) on May 21, 2009. The second, $4 billion facility agreement between BANDES and CDB — also known as Tranche B under the JCVF or Heavy Fund II (Fondo Pesado II in Spanish) — was signed in February 2009. It carried the following borrowing terms: a 3-year maturity (extendable/renewable for up to 15 years) and an interest rate of LIBOR plus a 2.5% margin. The borrower was responsible for making quarterly principal and interest payments to the lender. It was also responsible for maintaining a minimum cash balance (worth approximately $680 million) in the CDB-controlled bank account as a source of cash collateral. According to a Venezuelan Government filling with the U.S. Securities and Exchange Commission (SEC), the Tranche B loan achieved a 100% disbursement rate and was fully repaid by the borrower by the final maturity date of February 2012. In total, the borrower made repayments worth approximately $4.1691 billion ($4 billion of principal and $212.9 million of interest). Under a revised version of the Petroleum Sales and Purchase Contract between PDVSA and CHINAOIL, PDVSA agreed to sell on behalf of the Venezuela Government, based on a pre-agreed pricing formula, 107,000-153,000 barrels of fuel and/or crude oil per day to CHINAOIL until the full repayment of all amounts due in connection with the CDB-BANDES facility agreement. The actual volumes of fuel and crude oil sold by PDVSA and delivered to CHINAOIL reportedly fluctuated with the price of oil (from a minimum of 110,000 barrels per day when oil prices were above $60 per barrel to a maximum of 153,000 barrels per day when oil prices were below $42 per barrel). BANDES exercised its right to ‘extend’ (‘renew’) Tranches A and B by signing a series of rollover facility agreements with CDB. The first Tranche A rollover facility agreement (worth $4 billion) was signed by BANDES and CDB in June 2011. It carried the following borrowing terms: a 3-year maturity and an interest rate of LIBOR plus a 2.5 margin. The borrower was responsible for making quarterly principal and interest payments to the lender. It was also responsible for maintaining a minimum cash balance (worth approximately $680 million) in the CDB-controlled bank account as a source of cash collateral. According to a Venezuelan Government filling with the U.S. Securities and Exchange Commission (SEC), the first Tranche A rollover facility (also known as the Tranche A-II facility and Tranche A Renewal 1) achieved a 100% disbursement rate and was fully repaid by the borrower by the final maturity date of May 2014. In total, the borrower made repayments worth approximately $4.2582 billion ($4 billion of principal and $258.2 million of interest). The second Tranche A rollover facility agreement (worth $4 billion) was signed by BANDES and CDB in July 2014. It carried the following borrowing terms: a 3-year maturity and an interest rate of LIBOR plus a 2.5 margin. The borrower was responsible for making quarterly principal and interest payments to the lender. It was also responsible for maintaining a minimum cash balance (worth approximately $680 million) in the CDB-controlled bank account as a source of cash collateral. According to a Venezuelan Government filling with the U.S. Securities and Exchange Commission (SEC), the second Tranche A rollover facility (also known as the Tranche A-III facility and and Tranche A Renewal 2) fully disbursed in November 2014. By the end of 2016, the borrower made repayments worth approximately $2.6623 billion ($2.3333 billion of principal and $329 million of interest). The loan’s estimated outstanding amount was $1.6667 billion as of the end of 2016. Its estimated outstanding amount was $1.83 billion as of the end of 2018. As a counterpart contribution to the second Tranche A rollover facility, FONDEN provided the equivalent of $2.0 billion in Bolívares. The first Tranche B rollover facility agreement (worth $4 billion) was signed by BANDES and CDB in February 2012. It carried the following borrowing terms: a 3-year maturity and an interest rate of LIBOR plus a 2.5 margin. The borrower was responsible for making quarterly principal and interest payments to the lender. It was also responsible for maintaining a minimum cash balance (worth approximately $680 million) in the CDB-controlled bank account as a source of cash collateral. According to a Venezuelan Government filling with the U.S. Securities and Exchange Commission (SEC), the first Tranche B rollover facility (also known as the Tranche B-II facility and Tranche B Renewal 1) achieved a 100% disbursement rate and was fully repaid by the borrower by the final maturity date of February 2015. In total, the borrower made repayments worth approximately $4.2902 billion ($4 billion of principal and $290.2 million of interest). The second Tranche B rollover facility agreement (worth $5 billion) was signed by BANDES and CDB in April 2015. It carried the following borrowing terms: a 3-year maturity and an interest rate of LIBOR plus a 2.5 margin. The borrower was responsible for making quarterly principal and interest payments to the lender. It was also responsible for maintaining a minimum cash balance (worth approximately $850 million) in the CDB-controlled bank account as a source of cash collateral. The second Tranche B rollover facility reportedly achieved a 100% disbursement rate. By the end of 2016, the borrower made repayments worth approximately $2.0189 billion ($1.6667 billion of principal and $352.3 million of interest). The loan’s estimated outstanding amount was $3.3333 billion as of the end of 2016. Its estimated outstanding amount was $4.171 billion as of the end of 2018. As a counterpart contribution to the second Tranche B rollover facility (also known as the Tranche B-III facility and Tranche B Renewal 2), FONDEN provided the equivalent of $1.0 billion in Bolívares (6.3 billion Bolívares). Then, in November 2013, CDB and BANDES signed a $5 billion ‘Tranche C’ facility (loan) agreement under the JCVF (also known as Heavy Fund III or Fondo Pesado III in Spanish). It carried the following borrowing terms: a 3-year maturity and an interest rate of LIBOR plus a 2.5 margin. The borrower was responsible for making quarterly principal and interest payments to the lender. It was also responsible for maintaining a minimum cash balance (worth approximately $850 million) in the CDB-controlled bank account as a source of cash collateral. Tranche C reportedly achieved a 100% disbursement rate. By the end of 2016, the borrower made repayments worth approximately $4.5142 billion ($4.1667 billion of principal and $347.6 million of interest). By the end of 2016, the loan’s estimated amount outstanding was $833.3 million. By the end of 2018, its estimated amount outstanding was $429 million. As a counterpart contribution to the Tranche C facility agreement between CDB and BANDES, FONDEN provided the equivalent of $1 billion in Bolívares. The borrower (BANDES) was expected to use the loan proceeds from Tranches A, B, and C of the JCVF to finance individual projects — mainly in the infrastructure, industry, and energy sectors. The individual projects that are known to have been financed via Tranches A, B, and C include: the Metro de Valencia Project (captured via Project ID#58788), the Metro de Maracaibo Project (captured via Project ID#58791), the Metro de Los Teques and the Metro System of Caracas Project (captured via Project ID#37289), the III Bridge over the Orinoco (Guárico-Bolívar) Project (captured via Project ID#58628), the Continuation of the Gran Mariscal de Ayacucho Highway Project (captured via Project ID#58621), the Barrio Adentro IV Project (captured via Project ID#37292), the Mission Alma Mater Project (captured via Project ID#58795), the Second Stage of the Integral Rehabilitation of the Guárico River Irrigation System Project (captured via Project ID#37517), the Cerro Azul Cement Plant project (captured via Project ID#58801), the installation of a pipe plant in Ciudad Bolívar (captured via Project ID#58804), the Yaguara Montalbán Highway Exit project (captured via Project ID#58724), the Tinaco-Anaco Railway Project (captured via Project ID#37950), the Purchase of Surgical Equipment Project (captured via Project ID#38313), the Renovation and Support of Corpoelec Project (captured via Project ID#37523), Support to 13 Electricity Generation Projects (captured via Project ID#37542), the Purchase of Armored Amphibious Vehicles (captured via Project ID#38151), the Construction of VRSS-2 Satellite (captured via Project ID#38297), the Construction of a Musical Instruments Assembly Plant (captured via Project ID#38379), the Purchase of Equipment for Bauxilum Project (captured via Project ID#38159), the Maracaibo Plain Project (captured via Project ID#69377), the Rehabilitation of ‘El Guapo’ Dam Project, the Construction of 72 ‘Socialist Factories’ Project, the Merida Cable Car Modernization Project (captured via Project ID#69375), the Creation of the Avicola de Alba Socialist Joint Venture (captured via Project ID#69376), the Socialist Agrarian Project in the Maracaibo Plain (captured via Project ID#69377), the TermoZulia II Power Plant Project (captured via Project ID#91431), the Termozulia IV Power Plant Project (captured via Project ID#91492), the Bachaquero and Tamare Power Plants Project (Termozulia V) (captured via Project ID#91486), the La Cabrera (José Felix Ribas) Power Plant Project (captured via Project ID#91324), the TermoCarabobo II Power Plant Project (captured via Project ID#91283), the India Urquia Power Plant Project (captured via Project ID#91468), and the Juan Bautista Arismedi Power Plant Project (captured via Project ID#91475). Many of these projects were plagued by controversy and scandal. For example, according to an April 2019 Bloomberg report, the Tinaco-Anaco Railway Project was ‘left unfinished and in decay, garnering the nickname of red elephant.' In parallel to the JCVF, CDB and BANDES signed a $20.3 billion, oil-backed facility (loan) agreement — also known as the Long Term Facility (Gran Volumen) Agreement or the 2010-2020 Large Volume Long-Term Financing Resource Agreement (LVLTFRA) — on September 16, 2010. The agreement was published in the Venezuelan Official Gazette (No. 39.511). The facility consisted of two tranches: an RMB 70 billion tranche with a 10-year maturity (final maturity date: September 2020), a 6-month grace period, and an interest rate of SHIBOR plus a 4.5% margin; and a $10 billion tranche a 10-year maturity (final maturity date: September 2020), a 6-month grace period, and an interest rate of LIBOR plus a 4.5% margin. The facility was renewable/extendable at maturity. The borrower was responsible for making semi-annual principal and interest payments to the lender. It was also responsible for maintaining a minimum cash balance (worth approximately $3 billion) in the CDB-controlled bank account as a source of cash collateral. According to a loan disbursement schedule released by the borrower (BANDES), the $10 billion loan tranche had a scheduled disbursement of $6 billion on September 17, 2010 and a scheduled disbursement of $4 billion in April 2011, while the RMB 70 billion loan tranche had four scheduled disbursements in September 2010, April 2011, July 2011, and January 2012. The $20.3 billion facility reportedly disbursed in full in 2010 and 2011. By the end of 2016, the borrower made repayments on the $10 billion loan tranche worth approximately $7.3466 billion ($5.5 billion of principal and $1.8466 million of interest) and repayments on the RMB 70 billion loan tranche worth approximately $7.7725 billion ($5.5 billion of principal and $2.2725 million of interest). As of early 2016, the total estimated amount outstanding under the $20.3 billion facility (including the USD-denominated loan tranche and the RMB-denominated loan tranche) was $10.6 billion. By the end of 2016, the total estimated amount outstanding under the $20.3 billion facility was $9.3 billion ($4.8 billion under the USD-denominated loan tranche and $4.5 billion under the RMB-denominated loan tranche). By the end of 2018, the total estimated amount outstanding under the $20.3 billion facility (including the USD-denominated loan tranche and the RMB-denominated loan tranche) was $9.917 billion. The RMB 70 billion loan tranche was part of a pilot test for internationalizing the RMB and raising the profile of the RMB in the oil sector. Under a revised version of the Petroleum Sales and Purchase Contract between PDVSA and CHINAOIL, PDVSA agreed to sell on behalf of the Venezuela Government, based on a pre-agreed pricing formula, 200,000-300,000 barrels of fuel and/or crude oil per day to CHINAOIL until the full repayment of all amounts due in connection with the CDB-BANDES facility agreement. More specifically, PDVSA agreed to sell 200,000 barrels of fuel and/or crude oil per day to CHINAOIL in 2010, 250,000 barrels of fuel and/or crude oil per day to CHINAOIL in 2011, and 300,000 barrels of fuel and/or crude oil per day to CHINAOIL between 2012 and the final maturity date of the CDB loan (September 2020). According to the terms of the LVLTFRA, the borrower was expected to use the proceeds of the loan to (a) pay for goods and services from Chinese suppliers, (b) finance projects deemed eligible by the Chinese-Venezuelan High-Level Joint Commission, and/or (c) support Chinese-Venezuelan joint ventures in Venezuela. One media source suggests that the loan proceeds were ultimately used to finance 19 projects in the power generation sector, agricultural and livestock sector, manufacturing sector, and construction sector (10.02 billion USD). AidData has identified 16 specific projects funded through the LVLTFRA: Five Power Plants (captured as an umbrella via Project #37833); these projects include Planta Centro (Project #91235), El Chorrín hydroelectric plant (Project #91293), El Vigia (Don Luis Zambrano Thermoelectric) (Project #91086), and TermoCarabobo I (El Palito) (Project #91257) and are worth a total of USD 4.34 billion. Other projects include the Dredging of the Rio Orinoco Canal (captured via Project ID#37941); the Alcasa Aluminium Plant (captured via Project ID#37914); the Construction of New Pellet Plant and Production Facility Upgrade at Ferrominera Orinoco (captured via Project ID#37924); and the Tocoma Hydroelectric Power Plant (captured via Project ID#91452). It also provided for nine socialist agriculture projects (captured via Project ID#37829): the Río Guárico Socialist Agriculture Project (captured via Project ID#91524); the Píritu Becerra Socialist Agriculture Project (captured via Project ID#91536); the Eje Biruaca-Achaguas Socialist Agriculture Project (captured via Project ID#91538); the Río Tiznado Socialist Agrarian Development Project Phase II (Project ID#91539) the Delta Amacuro Agriculture Development Project (#91553); the Santo Domingo Irrigation Project (captured via Project ID#91565); the Llano Alto Socialist Agroecological Development Project (captured via Project ID#91569); the Guanarito Agriculture Project (captured via Project ID#91615); and the Alto Apure Socialist Axis Project (captured via Project ID#91618). By 2016, evidence had emerged that BANDES was in arrears and having difficulty servicing its outstanding repayment obligations to CDB. In April 2016, CDB and BANDES signed a debt rescheduling agreement. Under the terms of the agreement, CDB granted a two-year moratorium (or grace period) in which BANDES would only have to pay interest on its outstanding loan repayment obligations (estimated to be $19 billion at the time) and it could defer its principal payments as long as the price per barrel of oil remained under $50. If oil prices rose, BANDES (with support from PDVSA) would have to steadily increase its payments on the principal portions of the loans. China Development Bank also reportedly extended repayment deadlines (i.e. provided maturity extensions) and reduced the minimum oil shipment quantities specified in the Petroleum Sales and Purchase Contracts between PDVSA and CHINAOIL. Then, in August 2020, the Venezuelan Government announced that CDB had granted an additional moratorium (grace period) — of an unspecified length — in which BANDES would only have to pay interest on its outstanding loan repayment obligations (still estimated to be $19 billion). The Venezuelan Government also announced that ‘this (arrangement) will be in place until at least December [2020], and then [CDB will re-evaluate it.’ At the time of the August 2020 announcement, Reuters reported that CHINAOIL had stopped buying oil directly from PDVSA in 2019 as a result of U.S. sanctions meant to force Venezuela President Maduro from power that created penalties for companies that bought Venezuelan oil. Consequently, BANDES was unable to meet its repayment obligations to CDB in 2019 and 2020. Then, on August 26, 2022, Reuters reported that 'China has entrusted a defence-focussed state firm to ship millions of barrels of Venezuelan oil despite U.S. sanctions, part of a deal to offset Caracas' billions of dollars of debt to Beijing, according to three sources and tanker tracking data. China National Petroleum Corp (CNPC) stopped carrying Venezuelan oil in August 2019 after Washington tightened sanctions on the South American exporter. But it continued to find its way to China via traders who rebranded the fuel as Malaysian. [...] Since November 2020 China Aerospace Science and Industry Corp (CASIC) has been carrying Venezuelan crude on three tankers it acquired that year from PetroChina, CNPC's listed vehicle, the sources said. The oil is stored on a tank farm it also took over from PetroChina, the sources said. The three CASIC tankers load in Venezuela with their transponders active, allowing third-party tracking, Eikon data showed. The firm has taken 13 cargoes carrying a total of about 25 million barrels of oil, including two vessels due to arrive in China in September, according to the loading schedules of Venezuelan state oil firm PDVSA, and tanker tracking data from Refinitiv and Vortexa Analytics. The 13 shipments, worth about $1.5 billion at formula prices for Venezuela’s flagship-grade Merey crude, were declared "crude oil" at Chinese customs, without specifying origin, said one of the sources. "These shipments are strictly under a government mandate, where CASIC was designated to move the oil as payment to offset Venezuelan debt (to China)," the person said. The three sources spoke on condition of anonymity due to the sensitivity of the matter. Without commenting on debt offset, China's foreign ministry said on Friday the two nations are engaged in cooperation over "oil for humanitarian goods". “The cooperation meets Venezuela's current needs and is also in line with humanitarian principles," a ministry spokesperson said, adding that China opposes U.S. unilateral sanctions and long-arm jurisdiction. Media departments at CASIC and the General Administration of Chinese Customs did not respond to requests for comment. A CNPC representative declined to comment. A second source said that although part of each cargo pays down debt, other goods, such as COVID-19 vaccines, are also being subtracted from the crude sales. "All money from proceeds stays in China. Venezuela’s foreign affairs ministry is in charge of conciliation and accountability," said this person. At roughly 42,000 barrels a day, these shipments have increased total Venezuelan oil to China to about 420,000 bpd between January and July this year, equivalent to about 3% of China's consumption, according to Emma Li, analyst with Vortexa, which tracks such flows. China has not officially reported any crude oil imports from Venezuela since October 2019. [CASIC] was picked for the oil job because it is politically powerful and has limited global financial exposure, making it less vulnerable to sanctions, said the first source. [...] The CASIC Venezuelan oil shipments are transported by three Very Large Crude Carriers - Xingye, Yongle and Thousand Sunny-, according PDVSA's loading schedules and ship tracking by Vortexa and Refinitiv. CASIC took over the vessels from PetroChina in 2020, shortly after PetroChina took control of them after a legal dispute with PDVSA over assets involved in a joint venture bankruptcy, two sources told Reuters. PetroChina told Reuters in 2020 that it had transferred the vessels but declined to say to whom. PetroChina also transferred to CASIC a tank farm based in the eastern coastal city of Ningbo, where the shipments are delivered, the sources added. All Venezuelan oil cargoes received by CASIC were originally picked up at the Jose port by Cirrostrati Technology Co Ltd, a firm with no track record in oil trading, acting as intermediary for only these cargoes, according to PDVSA schedules. Cirrostrati could not be reached for comment. Reuters could not find the company's registration or incorporation information, or independently determine other links between Cirrostrati and CASIC. The oil shipped by CASIC is mostly consumed by China's independent refiners, which have increasingly relied on cheaper crude from Iran and Venezuela and more recently Russia to maintain operations. One independent refiner said they were offered the oil at $8 per barrel below benchmark Brent crude ex-storage basis, versus a discount of more than $30 for similar-quality crude marketed as a Malaysian export. "It is more costly, but it's good that the government is now taking charge of these Venezuelan supplies, which saves us lots of logistics headaches and sanction-related risks," said an executive with the refiner.’ The $4 billion Tranche A facility that was issued in November 2007 is captured via Project ID#35985. The first, $4 billion Tranche A rollover facility (also known as the Tranche A-II facility) that was issued in June 2011 is captured via Project ID#37838. The second, $4 billion Tranche A rollover facility (also known as the Tranche A-III facility) that was issued in July 2014 is captured via Project ID#38380. The $4 billion Tranche B facility that was issued in February 2009 is captured via Project ID#37528. The first, $4 billion Tranche B rollover facility (also known as the Tranche B-II facility) that was issued in February 2012 is captured via Project ID#38163. The second, $5 billion Tranche B rollover facility (also known as the Tranche B-III facility) that was issued in April 2015 is captured via Project ID#39099. The $5 billion Tranche C facility that was issued in November 2013 is captured via Project ID#38316. The RMB 70 billion tranche under the LVLTFRA, which was issued in September 2010, is captured via Project ID#37808. The $10 billion tranche under the LVLTFRA, which was issued in September 2010, is captured via Project ID#37804. The April 2016 debt rescheduling agreement is captured via Project ID#58377. The August 2020 debt rescheduling agreement is captured via Project ID#95953.

Additional details

1. Several sources (https://www.dropbox.com/s/ucb38bqmm72ath8/Venezuela%E2%80%99s%20latest%20surprise%20default%E2%80%A6China%21%20%20Financial%20Times.pdf?dl=0 and https://web.archive.org/web/20200803143932/https://chinaandlatinamerica.com/2014/10/20/cheaper-oil-prompts-changes-to-china-venezuela-loans/ and https://www.dropbox.com/s/e7p79qkgn4agx5e/%E4%B8%AD%E5%A7%94%E5%9F%BA%E9%87%91%E8%B0%83%E6%95%B4%E5%8D%8F%E8%AE%AE%E5%86%85%E5%AE%B9.pdf?dl=0) also suggest that a debt rescheduling took place in October 2014. This issue warrants further investigation.

Number of official sources

0

Number of total sources

2