A very risky bond deal with a huge yield.
It didn’t take long for sparks to fly after the Wall Street Journal reported on Sunday that, “according to five people familiar with the transaction,” the asset management division of Goldman Sachs had bought Venezuelan bonds with a face value of $2.8 billion from the Central Bank of Venezuela that it had held as part of its international reserves.
The sale of the bonds – issued by state-owned oil company Petróleos de Venezuela S.A. (PDVSA) in 2014 and due in 2022 – was completed on Thursday, according to the sources. That day and on Friday, the central bank’s international reserves jumped by $749 million, to around $10.86 billion, Reuters reported today. According to Reuters’s sources, including one at Goldman – oh my, all these leaks – the negotiations took place via middlemen in Europe.
This cash, as the Wall Street Journal put it, is “a lifeline to President Nicolás Maduro’s embattled government as it scrambles to raise funds in the midst of widening civil unrest.” The Journal describers the economic and social situation the Maduro regime is presiding over this way:
Mr. Maduro’s increasing authoritarianism coupled with critical food and medicine shortages have spawned two months of almost-daily street demonstrations, costing at least 60 lives. The economy is also suffering, having shrunk 27% since 2013. Venezuela is saddled with what the International Monetary Fund estimates will be an inflation rate of 720% this year.
Goldman paid 31 cents on the dollar for the bonds, or about $865 million, according to the Journal, amounting to a 31% discount on other Venezuelan bonds that are currently trading with a maturity date in the same year. And it apparently wasn’t the first time:
The people familiar said the deal is part of the asset manager’s steady increase in Venezuelan holdings. They said Goldman is betting that a change in government could more than double the value of the debt, which trades at deeply discounted rates with yields around 30% due to chronic default fears.
The government is desperately short on foreign currency, to service its foreign-currency debt and to import essentials. So this sale came in handy. But the opposition is not amused.
“Goldman is putting itself on the wrong side of history with this deal,” Angel Alvarado, opposition lawmaker and member of the congressional finance committee, told the Wall Street Journal. “This is a bad decision not just from the ethical, but also from the business perspective,” he said.
On Monday, Julio Borges, president of Venezuela’s Congress, sent a letter to Goldman CEO Lloyd Blankfein, cited by Reuters, accusing Goldman of “aiding and abetting the country’s dictatorial regime”:
“Goldman Sachs’ financial lifeline to the regime will serve to strengthen the brutal repression unleashed against the hundreds of thousands of Venezuelans peacefully protesting for political change in the country.”
“Given the unconstitutional nature of Nicolas Maduro’s administration, its unwillingness to hold democratic elections and its systematic violation of human rights, I am dismayed that Goldman Sachs decided to enter this transaction.”
The Venezuelan Congress would open an investigation into the transaction, he wrote. He would also recommend “to any future democratic government of Venezuela not to recognize or pay these bonds.”
Goldman’s bet is based on Maduro’s total commitment so far to honor the country’s foreign currency obligations – no matter what the costs, such as not being able to import enough food for the people or equipment and supplies to keep oil production and exports up at its money machine, PDVSA. Venezuela has to pay $4.6 billion to service its debts in 2017, according to the Journal. Doubts have been swirling for years about its ability to do so, and as a consequence, its bonds trade with huge yields. But Venezuela has managed to muddle through so far, such as by mortgaging Citgo Petroleum, its US network of refineries, gas stations, and convenience stores.
As for Goldman, it’s just another unique opportunity to capitalize on highly risky bonds that might soar in value if the bet works out or might get crushed if it doesn’t. The rest, as is so often the case, is irrelevant for Goldman.
Worst-case scenario ahead? Read… Why I think Stocks Won’t Crash Spectacularly but May Zigzag Lower in Agonizing Ups-and-Downs, Possibly for Decades
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Woah Nellie
The Squid’s slimy tentacles reach to the ends of our planet. They are a plague to the World’s working class and their influence is also felt worldwide. Too Big to Fail is just about the dumbest thing any reasonable person could utter. Our politicians and our Government has failed to protect us from these leeches.
Our politicians and our Government has failed to protect us from these leeches.
Our politicians and government are OWNED by these leeches. Goldman Sachs was Obama’s #2 campaign contributor and owned Hillary outright. Trump campaigned as an outsider maverick, then appointed “former” Goldmanites to all crucial Treasury positions. The “former” Goldmanites at the Federal Reserve continue their “No Billionaire Left Behind” rackets against the 99%. You, citizen, are on your own against these financial predators and their Wall Street grifter accomplices.
” Our politicians and our Government has failed to protect us from these leeches ”
Protect us ? Hell Mike … in case you hadn’t noticed … with this administration Goldman Sachs now ARE our government and our politicians …. from damn near the top on down
I see you ignores the first part where he noted Goldman owned Clinton, and was the second biggest contributor to Obama.
Our politicians and government ARE these leeches. my God, where have you been. We live in the United States of Goldman Sachs.
With luck they will lose it all.
Talk about absolutely no conscience or values, the Squid sets a new low!
The vampire squid has the Fed and middle class taxpayers to cover any and all gambling loses. They can be as reckless and greedy as they want to be.
Gershon I wouldn’t be so sure about that if I were you The people are fed up and if they try that crap again with people suffering there could be serious blowback That is if a small percentage of the population gets serious about putting an end to this criminality I believe that day is coming from my perusals of the internet community
Oh please, Frederick. The ‘Murican sheeple were supposedly up in arms about the 2008 Wall Street bailout, but 95% of them bent over for Wall Street by voting for its water carriers Obama and McCain in the 2008 elections. Most ‘Muricans are completely ignorant regarding the pernicious role played by the Federal Reserve and its Goldman Sachs handlers, and too dull-witted to make the connection between the Fed’s swindles and rackets and their own economic decline. A few keyboard commandos may be railing against the Fed on the “Internet community” you mention, but nowhere near enough are fired up enough to “put an end to this criminality” as you put it. Most of the sheep are too busy feeding on the green shoots sprouting from the manure the MSM spreads about their pasture to notice anything amiss.
You can always count on them to surprise on the sleazy side Paulo No doubt They need to be dismantled in my opinion
Government Sachs can bring about regime change in Venezuela. Even the clueless socialist Maduro understands this.
You bet Greek style. Slightly different play book, same ending.
In this case, they are holding it up.
I’ll bet anyone that if Maduro defaults on those bonds or is thrown out and the next regime refuses to honor them that the U.S. Taxpayers will ride to the rescue. This administration is chock-a-block full of Goldman alumni and they will tell stories that will bring tears to your eyes. The bill will also bring tears to your eyes.
No problem Goldman. The US taxpayer will make you whole along with a nice profit as usual.
Truer than you think. I believe that Goldman is directly acting as a proxy for the US government in this deal. Like they do for so many other financial moves.
“The US taxpayer will make you whole along with a nice profit as usual” and if I might add, along with their self-awarded bonuses :-)
Off topic but I had a Wolf Street flashback today. Car ad pops up on the tube…”5 months no payments” LOL
Venezuelan opposition says they won’t honor the bond deal the current socialist dictatorship struck with Goldman Sachs. Little do they know that the vampire squid owns the Trump administration and can compel them to ante up.
http://www.cnbc.com/2017/05/29/venezuelan-opposition-threatens-country-wont-pay-goldman-sachs-2-point-8-billion-bond-deal.html
Kushner/ Chabad will surely cry a river over any squid loses and Daddy Warbucks will fly to the rescue No doubt
When it comes to foreign influence what with his/their mountain of overseas debt .. the Chaos in Chief and his MiniMe Arschkussen have little if any influence what so ever on the world stage .. cause in case y’all hadn’t notice … we’ve been seriously ‘ marginalized ‘ … with both the EU and China taking the lead … and South/Central America not giving a rat’s posterior about what we may or may not want/demand . Fact is … they’re damn sick of us and our interfering .
Right. You need to understand the International rules and laws on bonds that have been in place for decades. Just ask Argentina how well telling Elliot Group to ‘go to’ went for them. You don’t pay, no one lends you a penny. Trump Administration has zero to do with that, the courts do, so how about keeping the fake accusations to a dull roar.
Venezuela has been using “distressed” PDVSA bonds to pay its bills for at least two years now: this is a side effect of the currency control system introduced by Chavez in 2002.
Most companies have to sell to the Venezuelan governments in bolivar, which then they have to get converted into hard currency by the currency board to take out of the country because- This means delays or, to be closer to the truth, getting paid in name only.
To get around these currency controls of its own making, the Venezuelan government has taken in paying creditors with PDVSA bonds, which are commonly traded both on the New York and the Franfurt stock exchanges. But, as usual, there’s a catch.
Bayer AG recently accepted PDVSA bonds maturing in 2022 (possibly the same issue Goldman is dealing with) in payment for agri chemicals sold to Caracas. The bill was US $200 million and they received said PDVSA bonds at a face value equivalent to the amount owed.
However Bayer reported a loss of US$126 million on the sale of those bonds… a 63% loss in face value.
As bad as it is the alternative was to either have the money “trapped” in a rapidly depreciating currency or patiently wait for the currency board in Caracas to convert those bolivars in US dollars. Which may take years, quite literally.
Recently some Russian creditors had loaded PDVSA tankers impounded in several Caribbean harbors due to unpaid bills, mostly related to oilfield equipment and services. Apparently the Russians are not interested in PDVSA bonds and want to be paid either directly in hard currency (like Iranians, Russians aren’t picky about which one) or in oil. This decision was probably taken due to the difficulties for Russian firms to deal on Western financial markets but, honestly, who can fault them for demanding something tangible?
Not only have you hit the nail on the head, but described it beautifully.
That oil and the debt to Russia has this country, the USA, on edge and it bears watching. Very dangerous in some eyes, and to many manufactured distractions abound everywhere you look.
Did someone say Cuba 1960’s?
” Did someone say Cuba 1960’s ? ”
Not in the slightest bit implausible .. verging on frighteningly prescient . Hmmm ….
I think I have not been very clear.
Venezuela turned to Russia (and to a far lesser extent, China, Japan and Malaysia) to obtain goods and technologies she desperately needs but which cannot obtain right now, as their previous Western vendors stopped dealing with Venezuela due to payment issues and the risk of seizing their assets seized on a whim.
Chief among these goods and technologies are those to avoid PDVSA operations to grind to a complete halt. Here Maduro is walking the tightrope: if the Russians stop keeping his decrepit rigs and refineries working, he may find himself in deeper waters than he is already. US, Norwegian, Dutch etc companies have all been burned dealing with Caracas and would demand guarantees the Venezuelan government cannot afford at the moment. They surely won’t take more PDVSA bonds.
In the past Petrochina negotiated to be paid in kind (oil) for technology it had transferred to PDVSA but the promise wasn’t kept and Petrochina had to settle for a very modest 25% of the original total. Petrochina is a SOE so they didn’t hurt economically, but they have since become far more cautious in dealing with the Venezuelan.
On the Goldman Sachs website they are not sure if the market bubble is from animal spirits or exuberance nothing about propping up dictators or destroying lives of millions for their slimy gains.
Speaking of animal spirits, if you’d like to harness the positive animal spirits available to help you be strong, healthy, and pain free, try some bovine collagen. For about $100 a year you can harness this spirit. You might be amazed to find out you can rebuild your joints, cartlidge, ligaments, organs, hair, skin, nails. Add some cold pressed flax oil. We are the resistance!
PrototypeGirl1 – You spelled “bovine shit” wrong.
Goldman buys PDVSA junk bonds from Central Bank inventory as a speculation.
President of Vz Congress says PDVSA should/will be ordered to default on these bonds by a new government. (What about the other bonds? Default on them, or only the ones Goldman bought? How about any government bonds? Them too? How about the megabillions in loans from China, being paid by over 1/3 of daily oil production? Cancel those contracts?).
How about the 2013 $1.62B GS (subsequently securitized to investors) 8% 2020 loan backed by 110% offshore gold collateral? Default on that and give up the gold?
Didn’t that loan, and all the other loans, buy some more time for the regime?
This does not inspire any hope of responsible behaviour in possible future regime change. Maybe these tactics need a little more thought.
Robert They should NEVER give up their gold however I’m sure the boys in NY will find a way to relieve the Venezuelan people of their real wealth Madura should remember what happened to Col Khadaffi
“Robert They should NEVER give up their gold”
They pledged it (I Think to JPM) as security for a loan long ago.
No “d” or whatever your name is That was tungsten and it went to Citibank according to Zerohedge
Well I got that story from a much more reliable source than ZH and as the gold is still in the fed under Venezuela, pledged to which ever US bank it is, all will b egood for them.
The Tungsten story, is very gold bug, very ZH. The Tungsten story has been going round for a long time.
It is Possible.
When somebody cuts open a genuine US bar on prime time TV and reveals a Tungsten center AND proves it was actually produced deliberately by the US, people will pay more attention.
Bars are routinely re-refined when they change hands since the iron contamination issues between Germany and the US post WW II. After much wrangling the US eventually replaced the considerable short fall.
As you seem to have an Issue.
d is first letter of first name, most non English speakers can easily use a letter to name 1 foreigner in their group.
Thats where it originally came from
As opposed to Dee which is a short for “Deidre” A most unfortunate name for a girl in the modern world.
Wolf will tell you, d is a very real person, with a consistent history.
“How about the megabillions in loans from China, being paid by over 1/3 of daily oil production? Cancel those contracts?”
And watch Venezuela turn into a province of china, Very quickly.
china is also the controller of Ecuador’s oil, all payments for Ecuador’s oil pass through chinese hands, before Ecuador sees anything, due to a similar transaction.
Yet everybody her has GS as the Bad guy in Venezuela and everywhere else…
Compared to russia and china’s predatory lending practices, GS is an Angel.
a) There’s nothing even remotely politically incorrect about mentioning the very real rise of Anti Semitism in the US as well as globally .. but ..
b) Does this behavior in any way reflect that rise in anti semitism ? Doubtful at best but most likely no .
This behavior is due solely to the worldwide global rise and dominance of NeoLiberalism ( across all party lines etc ) and its blatant greed addled agendas compounded ( to a smaller degree ) by a rising NeoFascism ignorant enough to fall for NL’s cons . Much as it pains me to admit Noam Chomsky is right about something/anything… read his new book ” Requiem for the American Dream ” .. or alternatively watch the film .
Goldman contends they bought the bonds from a secondary market not the government. I don’t see anyone else stepping up to the plate to provide Venezuela with foreign exchange currency. As long as the money did not come from the United States government its fine by me. Goldman can take the hit on their balance sheet , though i don’t this purchase will remain on their books for long. Anyways Venezuela is a victim of its own success . they sit on the worlds largest oil reserves . Mismanagement/regime changes/nationalization of their oil wealth has destroyed their only “cash cow”. read
https://www.forbes.com/sites/stevehanke/2017/03/06/venezuelas-pdvsa-the-worlds-worst-oil-company/#405802894105
they bought bonds that were for sale, so what?
6-12 months is all she wrote. i have to think on this.
Couldn’t the same be said about anybody buying government bonds, that they are aiding and abetting unsustainable spending
“When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes… Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.” – Napoleon Bonaparte, Emperor of France, 1815
Julio Borges doesn’t understand, GS is partners with the regime, bankruptcy and liquidation was the goal all along, duh.