BNP PARIBAS REPRESENTATIVE SEES FEW PROSPECTS FOR

C O N F I D E N T I A L CARACAS 001583 SIPDIS ENERGY FOR CDAY AND ALOCKWOOD HQ SOUTHCOM ALSO FOR POLAD TREASURY FOR RJARPE NSC FOR JSHRIER COMMERCE FOR 4431/MAC/WH/MCAMERON E.O. 12958: DECL: 11/13/2018 TAGS: ECON EFIN EPET VE SUBJECT: BNP PARIBAS REPRESENTATIVE SEES FEW PROSPECTS FOR INTERNATIONAL FINANCING FOR PDVSA AND GBRV REF: A. CARACAS 1554 ¶B. CARACAS 1540 ¶C. 2007 CARACAS 2056 Classified By: Economic Counselor Darnall Steuart for reasons 1.4 (b) and (d). ¶1. (C) BNP Paribas country representative in Venezuela Gregorio Toulemonde (strictly protect throughout) said he was "very worried" about the overall economic situation in the Bolivarian Republic of Venezuela (GBRV). He predicted a difficult 2009, with the BRV government (GBRV) "desperately seeking" more cash. If the price of the Venezuelan oil export basket averaged USD 60 per barrel in 2009, Toulemonde continued, the GBRV could make it through 2009 by drawing down its special funds (ref A). "I cannot see into 2010 at all," he concluded. -------------- -------------- BNP Paribas Not Interested in Additional Exposure -------------- -------------- ¶2. (C) Toulemonde noted that BNP Paribas, a longstanding banker to PDVSA and leader of a consortium of banks that rolled over a loan to PDVSA in January 2008 worth slightly more than USD 1 billion and maturing in January 2009, would be willing only to roll the loan over again for a maximum of one year, perhaps slightly increasing its value. It would not be willing to lend a substantially greater sum, and it would prefer a shorter maturity (e.g., six months). BNP Paribas helped finance three of the four upgraders in the former strategic associations in the Orinoco heavy oil belt, Toulemonde continued, but would almost certainly not be willing to finance the two upgraders envisioned as part of exploitation of the Carabobo block (ref B). PDVSA estimated the investment required for the entire Carabobo project at USD 30 billion, Toulemonde noted, a figure which he thought was too low. He questioned whether major oil companies would be willing to step up and finance the investment given the current oil price environment. -------------- Glencore Deal Falls Through -------------- ¶3. (C) Turning to other options for the GBRV and PDVSA to access international financing, Toulemonde suggested the recent demise of a potential deal between Glencore, the GBRV, and the Royal Bank of Scotland (RBS) was indicative of the difficulties the GBRV and PDVSA faced. According to Toulemonde, under the terms of this deal RBS would have financed the forward sale of oil royalties by the GBRV to Glencore, much like the terms of the USD 4 billion Chinese loan to the GBRV (ref C). Toulemonde said the deal fell through because the financing terms, under which RBS would have loaned the GBRV USD 4 billion with a five year maturity, were "too aggressive" for RBS in the current environment. Asked whether he thought the Chinese would loan the GBRV another USD 4 billion under similar terms, Toulemonde said it would depend on the exact terms and the amount of oil royalties the GBRV had available. He said he had not been permitted to see the terms of the initial USD 4 billion deal. -------------- Potential Financing from Asia -------------- ¶4. (C) Toulemonde said there were smaller pockets of liquidity in Russian and particularly Chinese banks the GBRV and/or PDVSA could tap. He estimated Chinese banks might be willing to loan up to USD 1.2 billion. He noted Japanese companies were still willing to finance and undertake large projects with PDVSA, such as major refinery upgrades. BNP Paribas was considering helping to finance one such project, Toulemonde said, but the financing would be guaranteed by the Japanese government so there would be no additional exposure to PDVSA or the GBRV. -------------- Comment -------------- ¶5. (C) Toulemonde's comments are significant, though not surprising in light of the beating GBRV and PDVSA debt have taken recently on international markets. They reflect an atmosphere that has changed greatly from earlier this year, when major international banks were willing to consider, if warily, further exposure to the GBRV and PDVSA. With liquidity drying up and risk aversion increasing, U.S. and European banks cannot justify greater exposure to the GBRV and PDVSA. It will be interesting to see if the Chinese can. End comment. CAULFIELD