The bond offering turns into confusion and fraud

October 5, 2009

If you thought the recent bond issue was confusing, the story became even more turbulent and confusing over the weekend.

First, Chief Economist Hugo Chavez announced that orders had been received totaling US$ 19.2 billion, announcing it as a triumph of his Government, as if the only reason for the demand was investor interest and not everyone wanting to get your Bolivars out of the country as fast as possible and buy them on the cheap at the same time.

The number seems outrageous at first sight, given that investors were required to pay by last Friday and US$ 19.2 billion represents depositing close to Bs. 58 billion in the bank by last Friday, a full 27% of all the Bolivars in the Venezuelan financial system today. For this to happen without overnight rates jumping up was certainly a miracle.

But then financial website Venepiramides enlightened us by explaining how brokers had managed to “create” internally the Bolivars, so that they could comply with the Government’s requirements, without really having them. Essentially, for those of you who are not experts, the brokers “lent” their clients internally the required money without having the Bolivars, registering the loan and the liability in the company’s books, which for the broker gives you a net of zero Bolivars. Thus, the broker created Bolivars out of nothing, something they are certainly not allowed to do.

The reason for requiring the deposit, was so that there would not be phantom orders, nor speculators, asking for a certain amount in the belief that they would get only a fraction. But I guess honesty has become a rare quality in our country, which has been irreparably damaged by Chavez, both materially and morally.

And the swap market went up this morning, because people figured they would get much less than they requested, giving the large demand for the bond.

Then, midday, the Agencia Bolivariana de Noticias published this work of art of a press release

Snapshot 2009-10-05 15-12-24

Which you may not be able to read completely, but just look at the title, it says the Government sold “19 mil 400 millones de Bolivares fuertes“.

The text is even worse, iot starts by saying “superó las expectativas del gobierno nacional, al ser solicitados 19 mil 400 millones de dólares respecto a 3 mil millones que era lo ofertado.” (The expectations of the Government were surpassed when 19.4 billion Bs. were requested compared to the 3 billion offered).

Uups!! The Government offered 3 billion dollars. As if this were not enough, later it says:

“Para llegar a la meta establecida en dicha ley el gobierno ofertó 3 mil millones de dólares en papeles. Sin embargo, con esta excesiva demanda posiblemente se ajuste a unos 4 mil millones de bolívares” (To reach the goal established in that law the Government offered 3 billion in bonds. However, with this excess demand it is possible that it may be adjusted to 4 billion Bs.)

This completely threw the market off, which by now had no clue whether the 19.4 billion were Bs. or US$, or what was going on.

The question is why the Ministry of Finance lets ABN write its press releases. Clearly whomever wrote that press release has no financial knowledge and did not even have it clear whether the Government was selling US$ or Bs. or rubles for that matter as sometimes it did not even give units.

By now, the press release has been corrected twice (They did not fix it right the first time), but this is revolutionary Venezuela, Bs. can be US$, 2,000 medical doctors leave their posts and nobody notices and Chavez says he needs ten more years to get rid of poverty in Venezuela, erroneously claiming he cut it in half. In fact, he bet his life that he would accomplish this goal. I guess Chavez will thus be responsible for his own magnicidio (assasination) or is it magnisuicide?

6 Responses to “The bond offering turns into confusion and fraud”

  1. moctavio Says:

    We are not doing them and we asked all clients to deposit the money

  2. bono Says:

    Miguel, sorry,

    Where you “work” mean that you are a Director, maybe a stock holder?

  3. bono Says:

    Miguel-

    Are you “echandole paja”to the financial group where you work?, I know they do mutuals!

    Maybe they lend money, but of course you may not know.

    Regards,

  4. island canuck Says:

    You can see a breakdown of the sale at http://www.controldecambio.com/archivos/resultados-soberanos1924.pdf

    The number asked for was indeed US$19,141,000,000. They increased the offer to US$5,000,000,000.

    The breakdown is really interesting. For example if you were a business & asked for more than US$1,002,000 you got nothing.

    If you asked for up to US$999,999 you got 100%.

    If you were a private person your limit was US$500,000. If you asked for more you only got that amount.


  5. Miguel

    I am speechless! Now I know why our bank insisted to lend us money to buy into the bond because we were short on cash flow due to some recent CADIVI debts that had to be paid. They said no to worry, they were giving us advantageous rates!!! They told us that they knew that within a few weeks we would have paid everything back based on our profile. In other words banks now have a list of closely followed up prospective bond buyers for sch events.

    We did not buy that much but we did buy becasue the bank practically begged us to do so!!!!!

    I suspect that we are not going to get even half of the already modest amount we asked…….


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