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Goldman under fire over Venezuela bond deal. Lawmakers ask U.S. Congress to probe transaction

Bank says investment reflects belief life there will improve -watch enlarge video

LIMA/CARACAS

Petroleumworld 05 31 2017

Goldman Sachs Group Inc. faces a probe by Venezuela's opposition leaders after buying bonds issued in 2014 by the state oil company, a purchase some lawmakers said bolsters President Nicolas Maduro as he grapples with accusations of human-rights violations .

The South American nation's legislature vowed to launch an investigation into whether the investment by Goldman Sachs's asset-management arm broke any laws, or whether paying back the debt is in the best interest of Venezuelans. The National Assembly also approved a motion late Tuesday to petition the U.S. Congress to probe the deal, which lawmakers said will prop up the country's embattled president.

“It's very serious that money is given to a corrupt, repressive dictatorship and an international bank gets off unscathed,” lawmaker Carlos Valero, a member of the Venezuelan congress's finance commission, said as the bill was passed.

Goldman Sachs's asset-management unit bought the securities, sold by Petroleos de Venezuela SA, through a broker and had no interaction with the government, the New York-based firm said in a statement. Venezuela's opposition, which has been urging Wall Street banks not to throw a financial lifeline to Maduro, alleges that the purchase represents an infusion of cash to the government.

Play audio:

Bloomberg's Bartenstein: Goldman defending Venezuela bond deal

Yesterday, Julio Borges, President of Venezuela's National Assembly, sent Goldman Sachs Chief Executive Officer Lloyd Blankfein a letter accusing the firm of trying to “make a quick buck off the suffering of the Venezuelan people,” according to a copy seen by Bloomberg.

About 30 protesters gathered Tuesday in front of the company's New York headquarters on West Street in lower Manhattan chanting “No more hunger bonds, Goldman Sachs” and “Goldman Sachs, shame on you.”

Eduardo Lugo, a student at the City University of New York who helped organize the demonstration, called the deal immoral. “To the markets again: Buying hunger bonds, buying blood bonds is condemning and sentencing the people of Venezuela to starvation and to repression,” he said in an interview.

Dollar Shortage

Maduro has 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 the statement. “We agree that life there has to get better. We made the investment in part because we believe it will.”

Goldman Sachs paid about $865 million, or 31 cents on the dollar, for the bonds, 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.

PDVSA's $4 billion of notes due in 2027 gained 0.5 percent to 39.22 cents on the dollar as of 1:31 p.m. in New York, the highest level in four months. Shares of the company dropped 2 percent to $218.42 at 4 p.m., the biggest decline in the Dow Jones Industrial Average.

The investment bank stressed that it's not alone in investing in the country. “Many investors make similar investments daily through mutual funds, index funds and ETFs which also hold PDVSA bonds,” the firm said.

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.

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.



Story by Ben Bartenstein and Andrew Rosati from Bloomberg.

bloomberg.com 05 30 2017

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