Monday, June 12, 2017

Feel the Bern: Venezuela’s Bonds Selling at Massive Discounts for Fear of Default


When it was learned that Goldman Sachs had purchased $2.8 billion of Venezuela’s bonds for just $865 million — a 69-percent discount — the firm received criticism from opponents of Venezuela President Nicolas Maduro (shown). The critics claimed that by buying them, even at such a fire sale price, Goldman allowed Maduro to pay some critical bills that kept his corrupt Marxist regime afloat for a little while longer.

Now comes word that Maduro has resorted to desperation financing — what the Wall Street Journal calls “unorthodox” — by issuing bonds to one of its state-owned banks, which then turned to Haitong Securities USA, a unit of China’s Haitong Securities, to resell them to vulture bond funds in the United States. According to unnamed managers, they were offered at an 80-percent discount. If they can be sold, which is dubious because of the nature of the unregulated black market in which they are being offered, Maduro would receive $1 billion in hard currency in exchange for a promise to pay it back, by 2036.

Some are likening the move to that of an individual hocking his TV set in order to buy groceries. In the case of Venezuela, Maduro is hocking the country’s future in order to keep himself power for a little longer. Russ Dallen, a managing partner at Caracas Capital, a brokerage house that tracks the company’s bond offerings, said: “Venezuela is borrowing at loan shark rates, as if they were going out of business and had no intention of paying these bonds back.”......To Read More....

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