Venezuela wins Russia and China backing as it says it is honoring debt

MOSCOW/CARACAS, (Reuters) - Venezuela won easier debt terms from Russia and got a vote of confidence from China yesterday, as the oil-rich country said it had starting making interest payments on bonds after a delay that had threatened to trigger a default.

A debt restructuring deal with Russia that allows Caracas to make “minimal” payments to Moscow in the next six years, together with a separate statement from the Chinese Foreign Ministry that Venezuela was capable of handing the debt issue “appropriately,” underlined the reserve of support its socialist government enjoys from both countries.

Venezuela has borrowed billions of dollars from Russia and China over the years, primarily through oil-for-loan deals that have crimped the country’s hard currency revenue by requiring oil shipments to be used to service those loans.

If backed by more debt forgiveness like that offered by Russia on Wednesday, the two countries could provide a lifeline to Venezuela as it seeks to keep its deeply depressed economy solvent, even as U.S. and European sanctions target the government of President Nicolas Maduro.

Critics led by the United States have slammed Maduro as a dictator and assailed him for clamping down on the country’s opposition, jailing dissenters and nullifying the powers of its democratically- elected National Assembly.

Venezuelan bond prices have been on a roller-coaster over the past 10 days, as Maduro called investors to debt restructuring talks, while pledging to keep honoring the country’s obligations. But S&P Global Ratings declared it in selective default on two of its sovereign bonds early this week after it failed to make the coupons within a 30-day grace period.

On Wednesday, the Economy Ministry said it had started transferring $ 200 million in interest

payments on those bonds, which mature in 2019 and 2024.

The 2019 bonds edged up 0.25 points or about 1 percent, while the 2024 bonds surged 2.25 points, or almost 10 percent, according to Thomson Reuters Eikon data.

“Our government keeps complying with its obligations and re-affirms the call to re-negotiate Venezuela’s foreign debt,” the ministry said.

Separately, state oil company PDVSA said it had made interest payments on its 2027 bond and had “successfully completed” capital payments on its 2020 and 2017N bonds.

Derivatives industry group ISDA will hold a hearing on Thursday to discuss whether Venezuela and PDVSA have entered default due to the late payments, an ISDA spokeswoman said in an email.

Maduro’s government has vowed to keep making payments responsibly. Creditors who attended a sparsely attended meeting on Monday in Caracas intended to kick off the debt restructuring talks said the government negotiators had offered no concrete proposals, however.