August 30, 2017 / 1:04 PM / a year ago

U.S. sanctions on Venezuela oil company CFO tangle financial deals -sources

    By Alexandra Ulmer and Marianna Parraga
    CARACAS/HOUSTON, Aug 30 (Reuters) - U.S. sanctions on the
finance boss of Venezuela's oil company PDVSA have led to some
exports to the United States being blocked as banks and
investment funds refuse to provide letters of credit to
potential buyers, three financial sources said.
    U.S. businesses are barred from dealing with a sanctioned
person or company and one of the sources said the sanctions on
PDVSA's Finance Vice President Simon Zerpa were deterring some
businesses from investments with the company as so many of its
transactions are linked to the finance department he leads.
    A Venezuelan oil shipment to the United States was blocked
this month as lenders refused to provide letters of credit to
PDVSA customers, the sources said.             
    Letters of credit, issued by banks, guarantee to a seller
that a buyer will pay a specified amount on time when a shipment
is accepted. Without a letter of credit, shipments cannot be
delivered and the shipper does not get paid. Blocking letters of
credit for PDVSA oil chokes off cash that is desperately needed
in the OPEC nation.
    Petróleos de Venezuela, S.A., commonly known as PDVSA, is
the financial motor of President Nicolas Maduro's leftist
government, and it is operating within one of the deepest
economic recessions Venezuela has ever experienced and
widespread political unrest.
    In one instance, U.S. refiner PBF Energy         was unable
to get a letter of credit for a Venezuelan crude cargo to be
received at a U.S. port.
    The Suezmax tanker Karvounis has been anchored in the U.S.
Gulf for more than a month. It partially discharged its cargo on
Aug. 23 in New Orleans, according to Thomson Reuters vessel
tracking data. A trader close to the deal said PBF Energy
ultimately agreed to a prepayment, removing the need for a
credit letter. It was unclear what would happen with the rest of
the cargo.
    Some U.S. customers can import without a letter of credit if
they pay up front. 
    In July, the United States imposed sanctions on 13 senior
Venezuelan officials, including the head of Venezuela’s army,
the national police chief, the director of elections, and Zerpa.
    At the time, a U.S. official warned that the administration
of U.S. President Donald Trump was readying tougher measures
that could be part of a “steady drumbeat” of responses to the
Venezuelan crisis.
    The most serious potential future step would be financial
sanctions that would halt dollar payments for the country’s oil,
starving the government of hard currency, or a total ban on oil
imports to the United States, Venezuela’s biggest customer.
    This month the United States imposed its first economic
sanctions on Venezuela, banning debt trades for
government-issued bonds and bonds issued by PDVSA.             
    The problem could spread to more cargoes if banks refuse to
extend credit to companies that have a commercial relationship
with PDVSA, the sources said.
    The sources said foreign oil companies funding projects in
Venezuela and financial entities negotiating with PDVSA were
avoiding signing agreements that could involve Zerpa.
    Major oil company China National Petroleum Corporation
(CNPC) has pulled back from funding some operations at its joint
venture in Venezuela, a source at PDVSA said.
    Neither PDVSA nor the Information Ministry responded to 
requests for comment. Zerpa was not immediately available to
    "PDVSA will face additional trouble just by keeping a
sanctioned individual as CFO," said Jorge Piedrahita, chief
executive of broker-dealer Gear Capital Partners, who has been
involved with Venezuelan debt for many years.
    "Even the Russians and China's Development Bank should be
worried about signing something with him as they can be subject
to collateral damage from sanctions just by association."
    A close Maduro ally, Zerpa, 34, rose to prominence by
leading the bilateral Venezuela-China fund through which Caracas
borrows from Beijing and repays loans in oil and fuel. Venezuela
has borrowed over $60 billion from China, earning Zerpa the
nickname "Zerpa the Chinese."
    Two additional financial sources said having Zerpa as the
company's head of finance had made it impossible for U.S.
entities to assist PDVSA in debt refinancing, even before the
U.S. economic sanctions.
    Even basic activities, such as a conference call with
bondholders, are now essentially unthinkable, the sources said.
    Sanctions against Zerpa are having a knock-on effect on Wall
Street, affecting imports of food and medicine to Venezuela made
through funds headed by Zerpa, according to Delcy Rodriguez,
president of Maduro's new legislative assembly. 
    "This wasn't done to affect Venezuelan officials but rather
the entire population," Rodriguez said on Monday.
    Zerpa has held several high-profile posts including heading
Venezuela's state economic development bank Bandes and
off-budget investment fund Fonden.
    Opposition lawmakers have said he is an example of how the
late Hugo Chavez's "21st century socialism" has allowed
unprepared political figures to wield power over financial
    "I have a negative opinion of him because of the way he
handled the Chinese fund," said opposition lawmaker Angel
Alvarado, describing Zerpa as Maduro's "finance tsar." 
    U.S. pressure could force PDVSA to remove Zerpa from his
post, at least on paper. However, PDVSA has had issues in the
past that have led investors to tread cautiously with Venezuela.
    "In part, the sanctions codify an already existing situation
in which PDVSA and the Republic have little to no access to
international financial markets due to the combination of
political risk, unsustainable policies, concerns about legality
of new issues and reputational risk from providing funds to the
Venezuelan government," investment firm Torino Capital wrote in
a report to clients after Friday's sanctions.

 (Additional reporting by Brian Ellsworth and Corina Pons in
Caracas; Writing by Alexandra Ulmer; Editing by Dan Flynn and
James Dalgleish)
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