In his missive today, Venezuela critic Russ Dallen, a publisher, lawyer and Venezuela bond investor through Caracas Capital, offers some background on the political stagnation under Maduro. In short, the escalating violence and civil strife in the country means an impending “inflection point,” Dallen says:
” …the Maduro regime has been unable to raise significant foreign capital – aside from the loan from Rosneft (ROSN.Russia) against 49.9% of Petroleos de Venezuela’s U.S. refining operation Citgo (a story which we first help break on December 21) and the “morally repugnant” cash injection from Goldman Sachs last month. The Maduro regime’s refusal to co-exist and/or negotiate with an Opposition-dominated legislature (a task of functioning democracies all over the world) has led Maduro to unleash his own weapon of mass destruction – the hydrogen bomb of calling a National Constituent Assembly (ANC) …
The government is using this wafer-thin veneer of constitutional legality for two reasons … One is to bring along the military rank-and-file. While the upper echelons of the military are “all in” as they are making money with various schemes … The second reason for the legal lipservice is an attempt to give legal surety to potential investors (namely Russia, China & others interested in investing in oil, gold and mineral mining ventures) that were put off by the lack of National Assembly approval or a legally solid workaround. … the Supreme Court takes over the right to approve any new oil, gold or mineral investments since the National Assembly is in “contempt.” But Russia and other investors felt that ground was too shaky to invest billions of dollars, hence the regime’s National Constituent Assembly is designed to replace the obstinate National Assembly and pave that legal path for investment more solidly …”
GSAM has faced a storm of criticism for buying the PDVSA bonds, which opposition leaders say will not be honoured if the government falls. So far, says Russ Dallen of investment bank Caracas Capital, there have been no takers for the sovereign bonds.
“The PDVSA bond is toxic but not as toxic as the sovereign,” he says. “That one is incredibly radioactive. There have been no takers as far as I know, even at 20 cents.”
Mr Dallen at Caracas Capital — who is also publisher of the Latin American Herald Tribune, which first reported that Venezuela’s failure to pay its Russian debts had left a $1bn hole in Russia’s 2017 budget — points out that while Venezuela’s original default on its Russian debt happened some time ago, Russia’s public auditors say Venezuela has continued to miss payments this year, including one in March.
“Venezuela is borrowing at loan shark rates, as if they were going out of business and had no intention of paying these bonds back,” said Russ Dallen, managing partner at the brokerage Caracas Capital, which tracks Venezuela’s bond market.
“Esos son precios de liquidación”, explicó Russ Dallen, socio de la firma de corretaje Caracas Capital Markets. “Es del tipo de operaciones que una persona realiza cuando sabe que al final no va a pagar las deudas, como cuando estás por declarar la bancarrota pero poco antes sales a comprar de todo, cargando hasta el máximo las tarjetas de crédito”.
Los bonos al portador, que en esencia permitirían a una persona transportar $5,000 millones anónimamente dentro de un maletín, son un instrumento actualmente muy pocas veces visto en los mercados financieros, tras haber sido descontinuados en Estados Unidos y otros países por convertirse en el instrumento perfecto para el lavado de dinero y la evasión fiscal.
La referencia mejor conocida sobre estos instrumentos quizás sea los bonos al portador Nakatomi, mencionados en la película Duro de Matar con Bruce Willis, donde el villano, Hans Gruber, esperaba escapar cómodamente con $640 millones dentro de una valija.
“No se pueden portar $5,000 millones dentro de un maletín en billetes de $100”, comentó Dallen. “Estos son instrumentos perfectos para terroristas ficcionales y, aparentemente también, para el régimen venezolano”.
“It’s like they’re having a going-out-of-business sale,” said Russ Dallen, partner at the brokerage Caracas Capital Markets. “And that’s what buyers should be worried about. Either they’re really desperate or they’re just filling up their credit card with no plans of paying back.”
RUSS DALLEN: They’re starving – the people are starving because there’s no food, and they’re protesting because they want a change of government.
LANE: Russ Dallen is managing partner of the investment bank Caracas Capital Markets. He’s also a foe of the Maduro government. Every day, he watches money flow out of the country’s central bank as it tries to meet the basic needs of its people. But last week, something unusual happened. There were deposits.
DALLEN: There was one for $300 million on the 24; another one for $400-something million on the 25, and that’s when we knew something was strange.
La clave, según ha explicado Russ Dallen, socio y manager de Caracas Capital a este periódico, es que Dinosaur sólo hizo de intermediario, con un dinero que no era suyo -sino de Goldman- para comprar los bonos al banco central de Venezuela, que era quien tenía los bonos. Así, lo que era una venta directa quedaba formalmente como una operación en el mercado secundario.
Goldman Sachs rechtfertigte sich gegen die Kritik in einer Stellungnahme. Der Bank sei bewusst, dass „Venezuela in einer Krise steckt“. Mit dem Geschäft setze Goldman jedoch auf eine künftige „Besserung des Lebens“ in Venezuela. Wenn die Bank das so sehe, „hätte sie die Anleihen auf dem Sekundärmarkt kaufen können, ohne das Geld direkt an Maduro zu geben“, kommentierte der amerikanische Spezialist für Venezuela-Anleihen, Russ Dallen. Stattdessen habe sie „wie ein Pfandverleiher, der weiß, dass er Diebesgut annimmt, 865 Millionen Dollar an ein illegitimes und diktatorisches Regime geliefert“.
The Wall Street Journal named the brokerage as a little-known outfit called Dinosaur Group, too small to have bought the bonds and sold them itself, so it would only have been an intermediary, argues Russ Dallen of Caracas Capital. And the Venezuelan central bank’s reserves rose by $442m to $10.8bn last Thursday, the day the bond trade is reported to have gone through.
“I find what Goldman did morally reprehensible,” says Russ Dallen, managing partner of Caracas Capital, an investing firm in Miami.
The immorality of the transaction is matched only by its strangeness. In an email Tuesday to colleagues, Venezuelan financial expert Russell Dallen compared Goldman’s behavior to “a pawn-shop owner buying goods they know are stolen.”
Here’s what Venezuela bond investor and Latin American Herald Tribune publisher Russ Dallen doesn’t mince words on Goldman’s Venezuela bond purchase:
“… full-court press on the issue — the latest leg seems to be looking for Dinosaur Securities‘ Javier Perez-Santalla, who is thought to be the intermediary between the Venezuela Central Bank and Goldman, and wondering just how much the spread was on this transaction. Dinosaur Securities is an extremely small shop and does not have $900 million to buy these bonds. They merely broked [sic] the bonds to Goldman, making Goldman’s statement that they “bought the bonds in the secondary market and did not buy them directly from Venezuela” bull**** technical spin …”
Dallen also is questioning the numbers, based on previous reporting on size of the bond issuance. he adds;
” … if the WSJ is correct and Goldman bought $2.8 billion of the PDVSA 6% of 2022, what does [U.S. investment fund Fintech Advisory] have in repo, because according to the Reuters story last month Fintech got $1.3 billion of the PDVSA 6% of 2022 (at what looked to be a price of 23). The problem is that there are only $3 billion of these bonds — so either at least one of the stories is incorrect, or the Venezuela Central Bank recalled the Fintech repo early, or Venezuela and PDVSA made more than $3 billion of this bond …”
“Saya melihat apa yang Goldman lakukan secara moral sungguh tercela,” kata Russ Dallen, managing partner Caracas Capital, perusahaan investasi di Miami.
RUSS DALLEN, President and Editor-in-Chief of the Latin American Herald Tribune:
- Goldman Sachs’ purchase of Venezuela’s State Oil Company’s Bonds
- Russia’s attempts to acquire American and Venezuelan energy assets