Venezuela is in advanced talks for a $5 billion loan from international banks and investment funds, the head of the central bank said on Friday, potentially providing an influx of cash for the Opec member country, which faces heavy debt payments this year.
The operation would provide $3 billion in liquidity for the government and $2 billion to finance a gold mining joint venture with Canada's Gold Reserve Inc, Nelson Merentes, the central bank president, said in an interview. On Wednesday, Venezuela and Gold Reserve signed a memorandum of understanding to jointly develop the Las Brisas and Las Cristinas gold mines, ending an arbitration dispute.
"We hope within a month to constitute the company, and in parallel we are seeking the loan," Merentes said. "I can't say for sure if it will be in a month, in two months. But it will definitely be this year. We are moving quickly." Gold Reserve was not immediately available for comment. Merentes said the loan would be repaid with gold produced from the mines, which would serve as the guarantee for the loan. A spokeswoman for Gold Reserve declined to comment, saying that the company planned to issue a statement in the "near future."
Merentes said banks from Germany, Canada and China had come to Caracas to participate in a government-sponsored mining sector event. It was not immediately clear whether these banks would be involved in providing the loan. Investors have grown more concerned that Venezuela or state oil company PDVSA could default this year, pushing the country's bond yields to the highest level of any emerging market nation.
Venezuela's international reserves fell to a 17-year low of $13.5 billion on Friday after the government paid in full its $1.5 billion Global 2016 bond, according to central bank data. Merentes vowed Venezuela would meet all debt commitments, adding that authorities were willing to use instruments such as oil or gold warrants in efforts to refinance.
"These are commodities that can be sold in the future or in the present," he said. "We are going to continue doing modern financial architecture to seek liquidity." Obtaining the financing may be difficult given that Gold Reserve is a tiny exploration company with no assets in production. It had $2.2 million in cash on hand as of the end of September. In its third-quarter results it warned of "substantial doubt about the company's ability to continue as a going concern."
Banks have been leery of funding the advanced projects of major players in the sector, and precious metal exploration companies have largely fallen out of favor with investors, stung by the extended slide in bullion prices. Merentes confirmed that the central bank has been carrying out gold swaps, financial operations in which central banks receive cash from financial institutions in exchange for lending gold during a specific period of time.
"It's normal, all central banks do this," he said, adding that the operations have time frames of three to four years with multiple banks, which he did not identify. "As part of our strategy, the (central bank's) board of directors has decided to carry out swaps." As of November, more than 60 percent of Venezuela's reserves were held in gold, which must be sold or swapped for it to be used to pay for imports or pay down debt.
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