Is Goldman Sachs Playing With Fire In Venezuela?

Goldman Sachs bought last week around US$2.8 billion bonds issued by Venezuela’s embattled state oil firm PDVSA, betting that a change in the Venezuelan regime could more than double the value of debt, The Wall Street Journal reported on Sunday, citing five people familiar with the deal.

According to the people in the know, last week Goldman’s asset management division paid US$0.31 on the dollar, or around US$865 million, for bonds that PDVSA issued in 2014 and that mature in 2022. The bonds had been held by the central bank of Venezuela, according to The Journal.

Due to Venezuela’s risk of default, bonds trade at deeply discounted rates and yields are juicy, at around 30 percent.

 Goldman’s bond purchase is part of a strategy to increase positions in Venezuelan holdings, The Journal’s sources said. The U.S. bank hadn’t negotiated the bond purchase directly with the Venezuelan government, rather, it acquired the debt via an unnamed broker, according to three of the sources.

According to The Journal, a senior finance official in Venezuela confirmed that the transaction had taken place, but declined to share details.

Goldman’s deal comes amid rising unrest in Venezuela, as people protest President Nicolas Maduro’s regime. Since the beginning of April, more than 50 people have been killed in protest-related violence. The transaction also comes as Venezuela’s oil industry is crippled amid hyperinflation and a crisis so deep that people scramble to get food and medicine supplies.

According to The Journal, Maduro’s detractors say that any bond purchase of Venezuelan bonds gives the regime much needed cash.

Goldman is putting itself on the wrong side of history with this deal,” opposition lawmaker Angel Alvarado told The Journal. Alvarado has described Goldman’s move as “a grave reputational error”.

Should an opposition-led administration take power, it would refrain from doing business with Goldman Sachs, Alvarado said.Oilprice.com


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