Tuesday, May 30, 2017

Goldman Sachs Panned By Venezuela Opposition Over Alleged Bond Buy

Bank bought $2.8 billion of state oil company’s debt, WSJ says; Lawmaker: Deal is to ‘detriment of Venezuela and its people.’


By Ben Bartenstein
Bloomberg
May 30, 2017

Goldman Sachs Group Inc. was denounced by the head of Venezuela’s legislature over a report that the bank bought $2.8 billion of bonds from that country, potentially helping President Nicolas Maduro’s administration amid accusations of human-rights violations.

The investment bank’s asset management arm paid about $865 million, or 31 cents on the dollar, for bonds issued in 2014 by state oil company Petroleos de Venezuela, the Wall Street Journal reported Sunday, citing five unidentified people familiar with last week’s transaction. Spokesmen for the central bank, which had held the notes, didn’t respond to messages.

“It is apparent Goldman Sachs decided to make a quick buck off the suffering of the Venezuelan people,” Julio Borges, the opposition lawmaker who heads the National Assembly, wrote in a letter to Goldman Chief Executive Officer Lloyd Blankfein and seen by Bloomberg. Congress will investigate the deal, he said. “I also intend to recommend to any future democratic government of Venezuela not to recognize or pay on these bonds.”

Venezuela’s opposition has been urging Wall Street banks not to throw a financial lifeline to Maduro, who’s faced almost two months of public protests while cutting imports of food and medicine to conserve cash and continue bond payments. The nation’s dollar shortage, exacerbated by a collapse in oil prices, has left investors trying to gauge the likelihood that the government can keep servicing its debt.

"We recognize that the situation is complex and evolving and that Venezuela is in crisis," Goldman Sachs said in an emailed response. "We agree that life there has to get better. We made the investment in part because we believe it will."

The investment bank added that it bought the bonds on the secondary market, stressing that it’s not alone in investing in the country.

Last month, lawmakers reached out to big Wall Street firms including Goldman Sachs, asking them not to help the country monetize its $7.7 billion in gold reserves. In an editorial on Friday, Harvard University economist Ricardo Hausmann -- a former planning minister in Venezuela and long-time critic of the current government -- called on JPMorgan Chase & Co. to remove Venezuela from its bond indexes so investors tracking the gauges aren’t compelled to buy those notes.

In his letter, Borges said Goldman Sachs’s deal violates the bank’s own code of conduct and its statement on human rights. A copy of that statement on the firm’s website said its respect for human rights is “fundamental to and informs our business,” and that the firm places a “high priority” on identifying potential issues when deciding whether to do business with a client.

Still, Borges said, the transaction helps Maduro. It’s “a financial lifeline to his authoritarian regime that is systematically violating the human rights of Venezuelans,” the lawmaker wrote in his letter to Blankfein. The “irregular nature” and “absurd financial terms involved” are “to the detriment of Venezuela and its people,” Borges said.

Fintech Advisory Inc., a New York-based investment fund, previously agreed to buy $1.3 billion of PDVSA bonds in a repo transaction providing at least $300 million of cash, Reuters reported in early April.

Goldman Sachs was the seventh-largest holder of PDVSA bonds as of March 31, according to data compiled by Bloomberg. Venezuela’s international reserves rebounded from near the lowest since 2002 last week, gaining more than $700 million to $10.86 billion as of May 25.


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