Liked this article by Andy Webb in the Financial Times on the questionable swaps by the Ministry of Finance (The BIG rip-off). Since it is by susbcription after two days, here is the whole thing, should speak for itself:
Venezuela‘s finance minister is under pressure from bankers and political opponents to explain a series of unusual debt deals that critics say could jeopardise a forthcoming bond swap offer to foreign investors.
Facing an economy that is forecast to shrink by about 15 per cent this year and a growing fiscal deficit, Tobias Nóbrega, the minister, wants to complete the swap in order to reduce looming payments obligations on the country’s $22bn (?19bn, £13bn) foreign debt.
At the centre of the controversy are two debt exchanges carried out in March and April, between the ministry, two privately owned brokers, and a state development bank formerly called the Venezuelan Investment Fund (FIV).
According to documents obtained by the FT, Mr Nóbrega and Nelson Merentes, head of Bandes, co-ordinated the sale of a basket of dollar-denominated Venezuelan sovereign bonds owned by the bank and worth a total of $411m.
The bonds were sold directly to Global Partners Group, a New York-based asset manager, and to Multiplicas, a brokerage owned by Venezuelan bank Banesco. In return, the ministry issued dollar promissory notes to Bandes, and received cash.
Bankers want to know why two small brokers were chosen, who is behind the deal, and what role was played by Alejandro Dopazo, the director of public credit and Mr Nóbrega’s closest aide.
Global Partners, which bought $308m worth of the bonds, was formerly Westfalia Investments, a Caracas-based brokerage that local brokers say had once employed Mr Dopazo as a trader. Neither Mr Dopazo nor Global Partners returned calls. Multiplicas, which acquired the other $103m worth of bonds from Bandes, handles the deposits of the Venezuelan military. The bonds were deposited into accounts at Lehman Brothers and JP Morgan Chase.
“The process lacks transparency and there are a lot of unanswered questions,” said Seth Antiles, director of Latin America fixed income strategy at Citibank.
“It is curious that they used very obscure brokerage houses. And it is very strange why a brokerage was needed at all to be involved in a swap between two public-sector entities.”
Mr Nóbrega said in a statement that third parties were used to avoid news of the debt sale “depressing prices” and that a “debt buy-back” legally required a third party. However, the bonds have not been retired.
“Market conditions prohibited the issue of new debt at a favourable coupon, and the swap avoided losses that otherwise would have been incurred,” Mr Nóbrega added. Concern about the transactions is understood to have prompted Diego Castellanos, the central bank governor, to write to President Hugo Chávez.
Opposition deputies have asked Mr Nóbrega to appear before the legislature’s finance commission on July 23 to answer accusations that the ministry is decapitalising Bandes.
Analysts say that, even though some of the bonds were originally bought by FIV at a discount, the transaction has weakened Bandes’s capital base because the promissory notes would be likely to be accorded a heavy discount if ever traded.
“Unless the minister of finance is able satisfactorily to explain these transactions, which so far he has not done, in any modern democracy this type of scandal would merit his resignation,” said Francisco Rodríguez, chief economic adviser to the legislature.
Investors are also concerned over whether either of the two brokerages, or their clients, might have been aware of details of a market-based swap and a new bond issue that Mr Nóbrega is preparing. Bankers say the bonds most likely to be swapped are those types – called DCBs and Flirbs – which were released by Bandes.
“You can’t give preferential treatment to only some of the bonds,” said José Barrionuevo, director of strategy at Barclays Capital. “Swaps have to be offered to the entire market.”