PDVSA, Venezuela’s national oil company, is being sued in New York for non-payment of a $25m promissory note in an action that opens the door to suits for an estimated $2bn or more regarding a string of suppliers with unpaid bills.
“It is now open season on PDVSA,” said Russ Dallen of Caracas Capital, an investment bank, who follows Venezuela closely. “This will start an avalanche of legal actions.”
The suit in the New York Southern District Court was opened on Wednesday by SNC-Lavalin, a Canadian engineering and construction company, which is one of several suppliers to have accepted the promissory notes from May 2016.
An initial $1.15bn of the notes were issued to 10 companies including GE Capital Financing and a subsidiary of Halliburton, the oil services group.
Others including SNC-Lavalin and Schlumberger, another oil services group, accepted the notes at later dates. Mr Dallen said an additional $800m to $1.5bn of the notes had been issued.
The suit is the second significant blow to PDVSA in two weeks, after ConocoPhillips, the US oil major, was awarded more than $2bn in compensation by the International Chamber of Commerce.
Mr Dallen said most of PDVSA’s fleet of oil tankers had returned to Venezuelan waters since the award on April 25, for fear of being seized, disrupting oil exports worth about $1.8bn a month.
The SNC suit “is the worst possible nightmare for Caracas”, said Mr Dallen, who first made the action public to his clients. “They were doing their utmost not to put PDVSA at risk.”
President Nicolás Maduro shocked bondholders in November by saying Venezuela would seek to renegotiate approximately $100bn of bonds issued by the government and PDVSA. Last month, it emerged that the country had stopped making payments on its sovereign bonds last September.
However, Caracas has continued to make sporadic payments on bonds issued by PDVSA, as the oil company’s overseas assets are at much greater risk of seizure by creditors than any sovereign assets.
The promissory notes are guaranteed by PDVSA Petróleo, a subsidiary that receives payments of about $30m a day from buyers of Venezuelan oil in several bank accounts situated outside Venezuela, which Mr Dallen said would become vulnerable to seizure if the SNC suit is successful.
PDVSA’s revenues have fallen sharply as its output collapsed from about 2.4m barrels a day at the end of 2015 to about 1.5m bpd at present, largely due to mismanagement and corruption, a situation that has worsened since an army general with no oil industry experience was put in charge of the company late last year.
Revenues from gold mining have also collapsed under army mismanagement, leaving Caracas with ever-decreasing funds to deal with an economic and humanitarian crisis that has seen an estimated 2m people flee the country.
In what Mr Dallen described as a sign of desperation, Venezuela withdrew $475m from its so-called reserve tranche position at the International Monetary Fund — money deposited by a country in its own currency.
“Essentially, Venezuela has borrowed billions from the IMF and is leaving the organisation with a bunch of worthless, monopoly money bolívares,” he said.