Goldman Sachs Defends Its Purchase Of Venezuelan Bonds

Goldman Sachs has strongly defended its decision to buy bonds issued by Venezuela’s state oil company in 2014 after being criticized by the head of the country’s legislative house for the decision.

Julio Borges, leader of Venezuela's National Assembly has accused the financial institution of making money off people’s suffering.

In a letter sent to Goldman CEO Lloyd Blankfein, he has warned that a succeeding democratic government may not buy the bonds back.

Goldman Sachs purchased bonds worth $2.8 billion issued by the state oil company Petroleos de Venezuela (PDVSA) for $865 million in 2014, which translates to around 31 cents on every dollar and implies a yield of over 40 percent annually. These bonds will mature in 2022.

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Borges has said that the unfavorable terms and irregular nature of the transaction raised questions, and has promised to initiate an investigation into it. He stated that the deal had offered vital support to President Nicolas Maduro's struggling regime, which has been accused of human rights violations against protestors.

The country has erupted into largescale protests in recent months as a result of a financial crisis which has left a shortage of essential items like food and medicines. Continued financial mismanagement and a sharp drop in the price of oil which is the country’s only export is said to be the main reasons for the crisis. The prevailing dollar shortage has also left investors worrying about the government’s ability to cover its debts.

Goldman Sachs has stated that it made the purchase without any direct contact with the government, having purchased it in the secondary market through a broker. Defending itself, the global financial institution has said that it had invested in PDVSA bonds because it believed like several other investors that the country’s situation would improve with time.

In a statement, Goldman said,

Many investors make similar investments daily through mutual funds, index funds and ETFs which also hold PDVSA bonds. We recognize 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

There have been numerous calls made on Wall Street firms against participating in the Venezuelan government’s efforts to raise money including monetization of its gold reserves worth $7.7 billion. In an editorial written for a major newspaper, Harvard University economist Ricardo Hausmann asked JPMorgan Chase & Co. to remove the country from its bond indexes.

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