88m3
Fast Money & Foreign Objects
By
PRUDENCE HO
June 18, 2015 3:39 p.m. ET
7 COMMENTS
HONG KONG—As Venezuela’s economy totters thanks to low oil prices and years of mismanagement, a Chinese government-owned bank is badly on the hook.
China Development Bank has lent nearly $37 billion to Venezuela since 2008, helping to prop up the regime of Hugo Chávez and his successor, Nicolás Maduro, while becoming one of the Latin American nation’s biggest creditors. Venezuela says China has pledged billions more.
CDB’s plan was simple. In return for its largess, Venezuela would send China millions of barrels of crude each year. Since the middle part of the last decade, the bank has doled out tens of billions in similar loans to energy companies and governments in other oil-producing countries to help secure resources for China’s expanding economy.
In Venezuela, the strategy has gone awry. In recent months, CDB has extended loan maturities and eased repayment terms, allowing the country to send it less oil than agreed and to pay bolivars instead of hard currency into a mutual-development fund intended to finance projects there. As other investors flee amid triple-digit-percentage inflation and social unrest, Venezuela has become more dependent on CDB.
“It shocks many when China issues major loans to Venezuela considering that the situation there is increasingly precarious, but there would indeed seem to be an ongoing commitment,” said Margaret Myers, the China and Latin America program director at Inter-American Dialogue, a Washington-based think tank.
The Caracas government said in January that China pledged $20 billion in new investment in housing and infrastructure, mainly via CDB. Neither the bank nor Chinese government officials have confirmed that transaction.
CDB didn’t respond to requests for comment.
Others are showing little loyalty to Venezuela. The price of its 10-year U.S. dollar-denominated bonds tumbled 60% from July to as low as 31 cents on the dollar in January. Wednesday, the debt traded at 35.15 cents, with a yield of 26.4%. Bond prices move inversely to yields.
In January, Moody’s Investors Service downgraded Venezuela’s credit rating to Caa3, saying “default risk has increased substantially.” Inflation hit 68.5% in 2014 and Venezuela’s central bank has since stopped publishing the data, but economists say the rate has passed 100%. Venezuelans are scrambling for dollars and shedding the bolivar, which has lost 93% of its value in the past two years on the country’s unofficial currency market. CDB doesn’t buy Venezuelan government bonds.
Venezuela’s finance, foreign and information ministries declined to comment.
http://www.wsj.com/articles/venezuela-oil-loans-go-awry-for-china-1434656360?mod=e2fb
lol
the comments section is a must read btw
Nevin Taylor7 hours ago
Perhaps it's time for China to move on to a less risky country such as Argentina...
PRUDENCE HO
June 18, 2015 3:39 p.m. ET
7 COMMENTS
HONG KONG—As Venezuela’s economy totters thanks to low oil prices and years of mismanagement, a Chinese government-owned bank is badly on the hook.
China Development Bank has lent nearly $37 billion to Venezuela since 2008, helping to prop up the regime of Hugo Chávez and his successor, Nicolás Maduro, while becoming one of the Latin American nation’s biggest creditors. Venezuela says China has pledged billions more.
CDB’s plan was simple. In return for its largess, Venezuela would send China millions of barrels of crude each year. Since the middle part of the last decade, the bank has doled out tens of billions in similar loans to energy companies and governments in other oil-producing countries to help secure resources for China’s expanding economy.
In Venezuela, the strategy has gone awry. In recent months, CDB has extended loan maturities and eased repayment terms, allowing the country to send it less oil than agreed and to pay bolivars instead of hard currency into a mutual-development fund intended to finance projects there. As other investors flee amid triple-digit-percentage inflation and social unrest, Venezuela has become more dependent on CDB.
“It shocks many when China issues major loans to Venezuela considering that the situation there is increasingly precarious, but there would indeed seem to be an ongoing commitment,” said Margaret Myers, the China and Latin America program director at Inter-American Dialogue, a Washington-based think tank.
The Caracas government said in January that China pledged $20 billion in new investment in housing and infrastructure, mainly via CDB. Neither the bank nor Chinese government officials have confirmed that transaction.
CDB didn’t respond to requests for comment.
Others are showing little loyalty to Venezuela. The price of its 10-year U.S. dollar-denominated bonds tumbled 60% from July to as low as 31 cents on the dollar in January. Wednesday, the debt traded at 35.15 cents, with a yield of 26.4%. Bond prices move inversely to yields.
In January, Moody’s Investors Service downgraded Venezuela’s credit rating to Caa3, saying “default risk has increased substantially.” Inflation hit 68.5% in 2014 and Venezuela’s central bank has since stopped publishing the data, but economists say the rate has passed 100%. Venezuelans are scrambling for dollars and shedding the bolivar, which has lost 93% of its value in the past two years on the country’s unofficial currency market. CDB doesn’t buy Venezuelan government bonds.
Venezuela’s finance, foreign and information ministries declined to comment.
http://www.wsj.com/articles/venezuela-oil-loans-go-awry-for-china-1434656360?mod=e2fb
lol
the comments section is a must read btw
Nevin Taylor7 hours ago
Perhaps it's time for China to move on to a less risky country such as Argentina...
Bienvenido a Caracashai wo de pengyou