China to lend Venezuela $10 billion

China will lend Venezuela around $10 billion in coming months, half as part of a bilateral financing deal and the other half for the development of oil fields, a senior official at state oil company PDVSA said.

Fresh funds are a boon for financially squeezed Venezuela and will likely increase market confidence over the OPEC country’s ability to meet major debt payments and arbitration awards. Venezuelan bonds rose following the news.

However, relief may be tempered as the loans appear largely earmarked and will only go so far in countering the steep tumble in oil prices and Venezuela’s severe recession. The first $5 billion loan, a renewal of the long-standing Joint Chinese-Venezuelan Fund, will be destined for wide-ranging projects, the official said. With a five-year payment term instead of the usual three, the loan will be signed this month and deposited in Venezuela’s international reserves in April.

The other “special” $5 billion loan will likely stipulate hiring Chinese companies to boost production in PDVSA’s mature oil fields. The 10-year loan will be signed in June, taken out by Venezuelan state development bank Bandes, and invested in 2015.

Energy-hungry China is keen to have a foothold in Venezuela, which has the world’s largest oil reserves, as part of a broader trend in which Beijing provides billions in financing to ensure crude supplies. The loans often hinge on hiring Chinese construction, engineering or oil services companies.

The funds would provide welcome investment in Venezuela’s oil sector just as PDVSA’s pragmatic new leadership seeks to shore up output. China has already loaned Venezuela over $45 billion in return for repayment in oil and fuel. The money is typically deposited in funds that focus on infrastructure and economic development.

Venezuela’s opposition politicians have voiced concerns over what they deem excessive reliance on China and decry a lack of transparency on the terms of the loans.

PDVSA is exploring various ways to shore up its coffers. The effort is seen as essential in a country where 96 percent of hard currency income stems from oil revenue.

The company is able to sell some dollars on Venezuela’s new Simadi foreign exchange platform via the state-run Banco de Venezuela, for instance.