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One of China’s biggest state-held companies, Sinopec, is suing Venezuela’s debt-ridden oil firm PDVSA in a U.S. court over unpaid bills, in a sign that China may be losing patience with its Latin American ally and is changing tone and tactics.
The U.S. unit of Sinopec filed the lawsuit at the Texas Southern District Court in Houston on November 27, and the nature of the suit is “other fraud”.
The language of the complaint suggests that the Venezuela-China bromance may be over, the Financial Times reports, citing the court documents it has seen.
In the lawsuit, Sinopec is suing PDVSA for $23.7 million plus punitive damages, alleging that PDVSA has only paid half of the bill in a contract from 2012 to purchase steel rebar—which is used in oil rigs—for $43.5 million from the Chinese firm.
In the complaint, Sinopec accuses PDVSA of having used “an undercapitalised shell with the sole purpose of preventing Sinopec from having a remedy” and says its conduct “constituted intentional misrepresentations, deceit, and concealment of material facts” involving “wilful deception” and coordinated conspiracy to defraud among several units of PDVSA, according to the FT.
“This is when we know that China is not going to bail these guys out,” Russ Dallen of boutique investment bank Caracas Capital, who follows Venezuela closely, told the FT.
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The lawsuit initiated by Sinopec could be interpreted as mounting evidence that China would no longer want to extend loans to Venezuela, and that changed position may have tipped the country and its oil firm into default, Dallen told the FT.
China, as well as Russia, has been extending credit to Venezuela in oil-for-loan deals. But PDVSA has been struggling to ship oil to Russia and China in return. As early as in February this year, PDVSA was said to have been months behind in oil shipments to its key allies.
The only creditor apparently still willing to work with Venezuela is Russia. Last month, when rating agencies started declaring Venezuela in selective or restricted default, Russia and Venezuela signed a deal to restructure $3.15 billion worth of Venezuelan debt owed to Moscow.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.