On Friday the Venezuelan Governemnt announced that it would buy back up to US$ 2 billion in debt isntruments issued by the country. The issues to be repurchased are those that are due before 2007 and does not include the so called “Global” bonds which expire in 2018 and 2027.
Earlier, the Minsitry of Finance had sold the portfolio of these same bonds held by a Government bank, Bandes, to two minor brokers, one in New York and another in Venezuela. This operation, for as much as US$ 400 million has been in the news because in it the Minsitry of Finance used these two brokers to “swap” notes with the Government bank via these two brokers. This suggested that these transactions were made simply to have someone make a commission in them.
What is interesting is that now the Governemnt is buying precisely the issues that the Government’s bank had sold into the market, suggesting that this may have been simply front-running of the buyback operation. In fact, Bandes sold mostly the issues that will be repurchased, holding on to the ones that will not be. If these two brokers held on to their positions, not only will they be able to amke a lot of money, but having one third of the outstanding bonds eligible for the Dutch auction, they will control at what price it will be done. At today’s prices we are talking about 17 point above the price they paid (They paid near 80%, auction price should be 86-88%) Clearly, if the Ministry of Finance was planning this repurchase, why did it allow Bandes to sell these bonds? They are either very stupid or extremely corrupt. To me it is very clear which of the two it is……
The Devil's Excrement 
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