Goldman Sachs Backs its Decision of Buying Venezuelan Bonds

Goldman SachsGoldman Sachs has defends its decision of buying the bonds issued by state oil company of Venezuela in the year 2014. Recently the company was severely criticised by the head of the legislative house in the country for this decision.

The leader of National Assembly of Venezuela, Julio Borges, has criticised that Goldman is trying to make money out of the suffering of the people.

Lloyd Blankfein has sent a letter to the CEO of the company in which he has clearly warned that nobody in the succeeding democratic government would be interested in purchasing the bonds back.

The bonds were purchased by Goldman Sachs by a whopping cost of $2.8 billion that has been issued by state oil company Petroleos de Venezuela (PDVSA) in the year 2014 for $865 million. This technically translates to approximately 31 cents for every dollar and an annual yield over 40% is implied. The bonds would mature in the year 2022.

Wochit News

According to Borges, the irregular nature of transactions and unfavourable terms has raised few questions and he has promised to make a proper investigation. He believes that the deal would provide a crucial support for the struggling regime of Nicolas Maduro who is the President of Venezuela. The President has been accused of violation of human rights against the protestors.

In the recent months, the country has erupted into widespread protests because of the financial crisis which in turn has resulted in a paucity of food and medicine. There are two main reasons for the crisis in the country. The first being the continued financial mismanagement and the second one is a steep decline in the oil prices. The investors are worried because the prevailing dollar shortage would not allow the government to cover its debts.

According to the company reports, Goldman Sachs has not consulted the government before buying the bonds. In fact, they have purchased from a secondary market through a Foreign Exchange trading broker. The company has invested in the bonds because the financial institution is of the opinion that the financial situation of the country is likely to improve with the passage of time.

Goldman has made the following statement:

Many investors make similar investments daily through mutual funds, index funds and ETFs which also hold PDVSA bonds. We recognise that the situation is complex and evolving and that Venezuela is in crisis. We agree that life there has to get better, and we made the investment in part because we believe it will.

A large number of calls have been made on Wall Street firms against the participation in the Venezuelan government’s efforts for raising money that includes gold reserves monetization of $7.7 billion. Ricardo Hausmann who is an economist from Harvard has written an editorial for a major newspaper in which it has asked the company JPMorgan and Chase for removing the country from its bond indexes.

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