Venezuela oil giant PDVSA avoids catastrophic debt default, despite Trump waging 'economic war'

Key Points
  • Venezuelan oil giant says it has paid $841 million in debt, avoiding a catastrophic default.
  • PDVSA's radio silence this week ahead of the payment rattled the markets.
  • The company said it honors its debts, despite U.S. President Donald Trump's "economic war" on Venezuela.
Venezuela’s oil company makes $841 million bond payment
Venezuela’s oil company makes $841 million bond payment

Venezuela's state-owned oil giant announced on Friday it had made a critical debt payment, avoiding a catastrophic default that could have seen the company lose control of the U.S.-based refiner Citgo, one of its crown jewels.

In a statement, Petreleos de Venezuela SA said it honors its debts, despite the "economic war" that U.S. President Donald Trump is waging on Venezuela.

PDVSA, as the company is known, said it was processing $841 million in principal due Friday on a bond that was backed by Citgo. For bondholders, the statement capped a tense week as the company remained radio silent about the payment.

As recently as Thursday evening, asset managers and bondholders were concerned PDVSA would not make the payment. Bond prices tanked after the company failed to make a statement following initial reports that it would avoid default.

If PDVSA defaulted, the market feared it would also skip a $1.2 billion payment on a bond that matures on Thursday.

With the payment on Friday, the "state confirms its full solvency and its ability to respond to its commitments, despite the economic war, the unjustified imposition of sanctions by Donald Trump," PDVSA said in a statement posted to its Facebook page.

Nicolas Maduro, president of Venezuela, gestures to the audience during a swearing in ceremony for the new board of directors of Petroleos de Venezuela SA (PDVSA).
Carlos Becerra | Bloomberg | Getty Images

The United States has imposed a series of sanctions on Venezuela this year following President Nicolas Maduro's effort to consolidate power and sweep aside political opposition in the nation's parliament.

"It should be noted that the Bolivarian Republic of Venezuela, through PDVSA, has consistently honored its obligations, therefore refuting the voices of those betting in favor of the economic fall of the country," PDVSA said in the statement.

Venezuela has spiraled into a full-blown crisis, sparked by years of economic mismanagement made worse by a three-year downturn in oil prices. The county has suffered food shortages, runaway inflation and violent street clashes, as Maduro prioritizes paying Venezuela's international creditors.

A default on the debt due Friday would have worsened PDVSA's deteriorating situation. Venezuela's oil production is slipping due to lack of maintenance at PDVSA, making it harder to drum up the revenues that keep the government running. Customers upset with the quality of PDVSA's crude oil have canceled orders and demanded refunds, and the company has been blocked from key export terminals. 

The government, PDVSA and the utility Electricidad de Caracas missed nearly $600 million in interest payments on seven bonds earlier this month. The skipped payments stoked concerns that sanctions were making it difficult to transfer funds to bondholders. Others speculated that leaders were shoring up cash to pay the two high-stakes principal payments by skipping the smaller interest payments, which have 30-day grace periods.

Venezuela's foreign reserves have stood around $10 billion recently, though some say as much as half of that may be in illiquid assets.

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— CNBC's Fred Imbert contributed to this story.