Venezuela puts debt restructuring on hold to prioritise oil deals

Venezuela's interim government under President Delcy Rodríguez has decided to postpone the restructuring of its external public debt and the obligations of state oil company Petróleos de Venezuela (PDVSA). It will first focus on oil contracts that are signed or still being negotiated, local outlet El Universal reported, citing three sources.

The process had been expected to be announced this week, or in the first week of October, the outlet said. The report could not be independently verified.

The sources said the new oil agreements should leave Venezuela less exposed when it comes to meeting its obligations to creditors. Rising crude output and state revenue over time would let Caracas honour its commitments with less financial strain on the government and PDVSA. That scenario would also mean smaller haircuts for bondholders, the sources said.

Once the process restarts, the International Monetary Fund would work directly with the interim government as an adviser and help prepare the official debt sustainability analysis (DSA). The government has reportedly not ruled out dropping Centerview Partners, the financial firm hired to advise on the restructuring.

According to the sources, the IMF's role would aim to give certainty to a market that wants rigorous audits and reliable statistics before any final deal. Venezuelan authorities are still holding high-level meetings on energy and external debt within multilateral organisations, El Universal reported. Rodríguez met IMF Managing Director Kristalina Georgieva on September 21, and US President Donald Trump on September 22 on the sidelines of the UN General Assembly in New York, but details of their talks have not been made public.

Centerview's contract has been criticised over its fees. Venezuelan news site Bitácora Económica also pointed to the firm's close ties with Mauricio Claver-Carone, a former adviser to Trump. The outlet also said a DSA that circulated several weeks ago was suspected to have been leaked, which raised doubts about its figures. It questioned whether there was enough technical capacity to consolidate a debt burden of more than $240bn, much of which would need a detailed audit.

The interim government announced on May 13 that it would start a "comprehensive and orderly" restructuring of sovereign and PDVSA debt. The announcement came about four months after US forces captured former president Nicolás Maduro on January 3, whisking him to New York to face narcoterrorism charges, which he denies. Rodriguez has since ruled Venezuela under US oversight, opening up the country's oil and mineral riches to US investors and earning repeated praise from Trump.

Venezuela's government blamed US financial sanctions imposed from 2017 for the country's default. Before then, analysts had put total liabilities at $150bn to $170bn. The Financial Times later reported that Caracas was preparing to disclose obligations of close to $240bn, which would make it the largest sovereign debt workout on record, ahead of Russia in 1998 and Argentina in 2001.

The choice of Centerview proved contentious from the start. In June, Lazard offered to do the advisory work for $25mn. By comparison, draft terms between Centerview and the government pointed to total payments of $150mn to $200mn. Caracas said at the time that Centerview remained its chosen adviser. In early August, Claver-Carone said he was no longer handling Venezuela policy, which had passed to an inter-agency team led by Secretary of State Marco Rubio. Reuters reported that he had helped shape decisions on the Centerview contract.

Up to now, the IMF has kept its distance from the process. It resumed engagement with Caracas in April after a seven-year break. In May, spokesperson Julie Kozack said the Fund had not been involved in preparing the DSA, but "we do stand ready to support the authorities in this important step." Most sovereign restructurings take place under an IMF programme, and going ahead without one had unsettled some creditors.

The change in priorities follows a series of energy agreements. On August 28, Trump announced what he called "the biggest oil deal in world history." The deal gives North American Blue Energy Partners (NABEP), a company led by controversial Venezuelan businessman Alejandro Betancourt, 100-year concessions over 17 fields. Those fields hold an estimated 65bn barrels, about a fifth of Venezuela's proven reserves. Terms released by the White House on August 31 give the Office of Strategic Capital, a Pentagon investment arm, a 35% stake in NABEP's parent company. The State Department also secured the right to buy a fifth of the venture's output at production cost.

Rodríguez said the wider agreement would run for 25 years. Over that period, Venezuela would collect a minimum royalty of 16% and income tax of 34%.

On September 2, Rodríguez met US Energy Secretary Chris Wright in Caracas, and further agreements involving Chevron (NYSE:CVX), Eni (BIT:ENI) and GE Vernova were announced. Chevron has committed more than $7bn to lift its Venezuelan output to about 600,000 barrels per day (bpd) over five years. Oxford Economics said that if all the projects are fully carried out, Venezuela's production could return to more than 2.5mn bpd within a decade. It added that taxes and royalties from NABEP's fields alone could raise government revenue by about 40% over that period.

Creditors have meanwhile been organising. In late August, companies holding commercial claims and arbitration awards formed a committee to seek a seat in eventual talks. Their advisers estimate those claims at more than $30bn.