Dealmaker: Jose Valdivia
The Deal: Valdivia, a Hogan Lovells partner, helped represent Petroleos de Venezuela (PDVSA), the Venezuelan state oil company as it obtained $1 billion in financing from Credit Suisse and signed deals worth $3 billion to modify and expand refining facilities in Puerto La Cruz, Venezuela.
All disbursement conditions for the first tranche of the three-phase project were satisfied by the second week of September.
Details: The transaction was global in scope: For Venezuela’s crucial oil industry, a consortium comprised of Korea-based Hyundai engineering and construction group and China’s Wison Engineering entered into contracts with financing from a Swiss banking giant. A special-purpose tax vehicle incorporated in Ireland was used.
The big-numbers deal is nothing new for Hogan Lovells’ international project finance group. In May the attorneys helped PDVSA sell $3 billion of 20-year bonds; last November they were bond counsel when the company issued $2.4 billion of securities in a private placement with the central bank.
“We have been regularly advising them [PDVSA] on those matters,” said Gonzalo Rodriguez-Matos, a partner in Hogan’s Caracas office who also worked on the deal.
The firm has helped PDVSA raise about $30 billion in the past couple of years, according to Valdivia. Based in Miami, he joined Hogan in 2002, before Hogan & Hartson merged with Lovells.
In the most recent transaction, Rodriguez-Matos did the construction-related work, Valdivia handled the financing aspects under New York law, and another Caracas partner, Bruno Ciuffetelli, took charge of development issues and served as overall coordinator.
The refinery in Puerto La Cruz is getting a major upgrade that is expected to take 42 months. Hyundai is the leader of the project consortium and Wison holds a minority stake.
At the same time, Venezuela is developing the Orinoco Belt, source of the extra heavy crude destined for the refinery. The U.S. Geological Service has said this oil field has reserves of 513 billion barrels of recoverable oil.
The Hogan lawyers started working on the deal early this year. The project is being carried out in tranches, or slices, because there are different lenders for each phase, Valdivia explained. He said the source of financing for the remaining $2 billion needed for the first phase is confidential.
Separating the project into three parts didn’t make things any easier for the lawyers.
“You have to coordinate to make sure the financing is in line with the construction contract,” said Valdivia. “Whenever money is flowing from the banks, it’s tied into the requirements of when you need to pay the contractors.”
“You need the same conditions in all the contracts and they have to fully align to avoid a mismatch in the flow of funds.”
After 20 years in this field, Valdivia said, “We’re familiar with the pitfalls you can encounter if you don’t do that correctly.” The project could be delayed, a construction contract could be breached, or there could be a default under the financing arrangement.
To prevent any of that from happening, Rodriguez-Matos said, “a structure was set up so funds would flow as the construction contract would progress. And that was the key factor in the successful transaction.”
With the Venezuelan presidential election coming up Oct. 7 — incumbent Hugo Chavez is favored to win — every government activity is scrutinized for its political significance. But the Puerto La Cruz refinery upgrade is apolitical, according to Rodriguez-Matos and Valdivia.
“It’s a long-term project for the benefit of the country,” Rodriguez-Matos said.
Valdivia said PDVSA is an autonomous, independent entity that acts like a private concern. He described the project as “part of the investment program of PDVSA, like any other oil company would have.”
Work on the second tranche is scheduled for the last quarter of this year. Same attorney players, new phase.
Background: Hogan Lovells Miami partner Tom Woolsey and associate Andres Chaves also worked on the project, along with New York partner Evan Koster and Caracas associate Marianna Boza.
Linklaters’ New York office represented Credit Suisse. PDVSA was already a client of Ciuffetelli’s in 2006, when he and another lawyer joined Hogan as partners and opened the firm’s Caracas office.