2013 was a good year for Goldman Sachs investments in Emerging Markets, most notably Venezuelan bonds (as they bet on socialism and won). A year later and Goldman’s EM debt portfolio is still loaded with Venezuelan bonds… and the arrears are mounting.
As Bloomberg reports, at a time whenVenezuela’s record $25 billion in arrears to importers has its citizens waiting hours in line to buy drinking water and crossing borders in search of medicine, President Nicolas Maduro is using the nation’s dwindling supply of dollars to enrich bondholders.
Venezuela, which imports just about everything, and its state oil producer have paid $2.8 billion in interest to overseas creditors this year, according to Barclays Plc. Including debt principal, bondholder outlays will balloon to almost $10 billion by year-end, the London-based firm estimates.
By putting off the local companies responsible for supplying everything from diapers to cancer medications, Maduro can preserve access to debt markets and protect oil shipments that would be vulnerable to bondholder seizure, said Alejandro Arreaza, an analyst at Barclays. Even if that means fanning the world’s fastest inflation and inflaming protests over shortages that have left at least 42 people dead since February.
“The government’s priority is to pay the sovereign debt,” Alejandro Arreaza, an analyst at Barclays Plc, said in a telephone interview from New York.
Of course, it’s not just the government debt but state-owned entities that need the USD and are getting priority over the thirsty population…
State oil company Petroleos de Venezuela SA is seeking a loan to pay off $3 billion of debt that matures this year and isn’t planning additional dollar bond sales in 2014, a company official said yesterday. PDVSA, as the Caracas-based company is known, is working to refinance an additional $11.9 billion of dollar debt due through 2017 to bring its annual maturities to no more than $3 billion, said the official, who asked not to be identified because he isn’t authorized to speak publicly.
“It’s the first time that it’s ever reached this critical level,” he said by telephone. “And it’s clear that they can’t pay it off at once.”
“There has been a divergence between what happens to Venezuelan bonds in the international market and what happens to businesses that operate inside of Venezuela,”
As one analysts noted… just like everywhere else in the world…
“The market is giving Venezuela the benefit of the doubt and hopes that it applies other economic measures that in one form or another will guarantee its capacity to repay bondholders,”
And so it goes…