An Andorran Stew: Making millions in the robolution

October 6, 2009

witches

The title of this post should make  no sense to most people. The word “stew” in English, does not have the same connotation that the word “guiso”, it’s Spanish translation, has in Venezuela.

Guiso means, besides stew,  scam or swindle. And that is exactly what the robolution did this week with the sale of the 2019 and 2024 bonds.

The way the whole thing was handled makes absolutely no sense, unless the whole point of the issue was to have the revolutionaries recoup their losses from the accounts frozen recently in Andorra. Thus the title “An Andorran Stew”.

Recall that the issue had two objectives:  One, to have the Government raise money for its expenses. Two, to help lower the swap parallel exchange rate.

Let’s see how well these goals were met:

Obviously the Government raised money. What began as an issue of US$ 3 billion ended up being increased to US$ 5 billion, sold at a price of Bs. 3.01 per US$. (Bs. 2.15 times 1.4 times 5 billion dollars).

The problem is that these bonds are selling at an average of 68% of its face value today (Dropping fast!). Thus, if you bought US$ 1000 of the bonds, you paid Bs. 3,100 for $680, so you really paid Bs. 4.43 per US dollar. This is 19.4% below where the parallel swap market was today.

Thus, you may ask: Why did the Government sell it so cheap if one of its goals was to raise lots of Bs. for its expenses? This clearly makes no sense whatsoever. People would have been willing to buy the bonds at a much higher price. In fact, the Government sold the bonds at auction, with prices between 135% and 140%. But it could have easily thrown in some uncertainty and made the range higher. This would have given it lots more Bolivars, after all, people just want to buy dollars and they would do so even at a small discount to the parallel swap market. 19.4% is simply absurd!

Thus, the first goal was met, but the Government could have generated lots more Bolivars very easily, rather than giving the bonds away on the cheap.

But if the first goal was met only half way, the second was simply missed completely. The biggest buyers in the swap market are corporations. They are the ones that move it. Not individuals, not small corporations, but the large importers. Thus, you would expect them to be treated at least equally well in the allocation of the bond. Or even treat them better if what you want is to lower the swap rate.

This is what happened in the allocation:

a) Individuals with orders below or equal to US$ 499,000, received 100% of their orders. Individuals with more than this amount received US$ 500,000.

b) Companies with orders up to US$ 999,999 received the full amount. Companies with orders above that received zero, nothing, zippo.

c) Orders from banks up to US$ 20 million received 100%. Orders from brokers up to US$ 8 million received 100%. Above that, zero.

These allocations make absolutely no sense if your purpose was to provide dollars to importers. They were completely left out!

In fact, banks and brokers have no need for US$ other than sell them to their clients, so by giving them such large amounts you gave them about Bs. 1 for each dollar they received. Nice profit if you knew what to ask for. In the past banks and brokers have usually been left out. As it should be.

By giving 100% to orders below half a million dollars for individuals, speculators, and of course, those in the know, maximized their profits. And this is they key, the allocation was so unlike the objective of the bond, that this had to be designed so that those in the know made a lot of money.

Add to that the fact that not everyone deposited the money, as required by the Government, and the profits can simply be staggering if you were in the know. And it was a great deal for everyone. If everyone sells their bonds today at current prices, the total profit was around Bs. 5 billion or about US$ 680 million dollars, about US$ 27.2 per Venezuelan inhabitant. To finance capital flight? Huh?

If you did have the money, as I suggested you do to go to the bond, you made 19.4% in about ten days. Those that didn’t put anything made, of course, an infinite return, and those in the know, surely made up at least part of their Andorran losses, when their account were frozen.

And remember: don’t hold on to the bonds too long, with a US$ 5 billion issue flooding the market (and more coming?), I would be very surprised if bond prices held up. You did not buy the bond to hold onto it, you bought it to purchase foreign currency. Don’t fall in love with the bonds!

Oh yes, and the country’s debt increased by US$5 billion so that all of this could happen…

31 Responses to “An Andorran Stew: Making millions in the robolution”


  1. Its such as you learn my thoughts! You appear to understand so much
    approximately this, like youu wrote the ebook in it or something.
    I think that you can do with a few p.c. to drive the message home a little bit,
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  2. peterschiff Says:

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  3. peterschiff Says:

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  4. […] million buying spree earlier this year. Apparently a piece of change for the robolution, remember that a judge in Andorra had “billions’ of dollars belonging to robolutionaries frozen in that country. We still […]

  5. osorio Says:

    @moctavio ok, gracias por la información.

  6. osorio Says:

    @moctavio exactamente esa parte la tenía bastante clara, la inversión mínima era 9030 BsF (mínimo 3000$). Ahora digamos, el bono fue adjudicado y yo quiero vender porque no me voy a quedar con eso hasta el 2019 o 2024, yo quiero vender el bono ya y sé que se cotiza en 68% de su valor, eso da un implicito de 4.48 BsF por US$.

    Entonces son 3000 $* 4.48 BsF = 13230 BsF. Mi gran duda es, yo le decía al Banco Mercantil que quiero ese dividendo ya (y por lo tanto ELLOS lo venden y me depositan), o por el contrario tengo que ir a la bolsa a vender YO MISMO ese bono?

  7. osorio Says:

    Primero que nada, debo decir que no participé en los de los bonos por mi desconocimiento en materia económica.

    Mi pregunta tiene que ver con la manera de liquidar los bonos ya que nunca me quedó claro la forma de hacer eso, es decir si yo ofertaba por 3000$ mediante el Banco Mercantil y me otorgaban mi bono, ¿cómo los liquido?

    ¿Yo tengo que acudir personalmente a la bolsa a vender esos bonos, o simplemente le puedo indicar a mi banco que no deseo mantener esos bonos y que por lo tanto, deseo venderlos?

    Si tengo que acudir a la bolsa no es una opción para mi, yo no se nada de bolsas y probablemente termine trasquilado allí (o quizá disponga de muy poco capital para participar allí). En cambio si simplemente le podía indicar a mi banco el deseo de venderlos y a su vez ellos se encargan de depositarme el resultado de dicha venta en mi cuenta, en ese caso era realmente conveniente para mi y creo que perdí una buena oportunidad.

    Sólo soy un venezolano de a pie, por lo que si alguien puede aclarme esa duda, se lo agradezco.

  8. Andres F Says:

    Papaupa, If you or anyone is interested, I have had the “Lista PSUV Stanford Bank” for some time. Not sure if this was made public or not… and could not verify its origin. Not sure if it’s ok to post it here, since it’s a little bit long.


  9. […] Devil's Excrement An Andorran Stew: Making millions in the robolutionThe bond offering turns into confusion and fraudXXIst Century Socialism Union Leaders, race horses […]

  10. Papaupa Says:

    Miguel excelente columna sigue publicando!!!, que en Venezuela nadie sabe nada sobre nada, y es por eso que este gobierno se aprovecha de toda la situacion, con este rio revuelto se ha hecho mucho dinero. Algun dia iran toditicos presos, aqui o en Miami. O exiliados en Cuba, good luck!

    Siguiendo el comentario de arriba podrias disclose los nombres de las cuentas de Andorra? Seria tambien interesantisimo saber que Chavistas se quemaron con Stanfor, recuerden que de los US$8 billones, US$3 billones venian de Venezuela..ay papaito, por lo que no me sorprenderia que varios Govt’ linked Individuals obtuvieron allocations en esta emision, para “recuperar” sus perdidas.

    Finalmente por que no nos habla de los banqueros de la revolucion que Teodoro a venido siguiendo? Ellos son los que le han vendido todos estos proyectos al gobierno: notas estructuradas (US$ 8 BN), Arbitrajes en las emisiones, etc.


  11. Cuando se sabrán los nombres de los depositantes en Andorra a quienes les congelaron cuentas? O se sabrán?

  12. moctavio Says:

    Rene: Venezuela has a manageable debt and maturities are well spread out in time, only in 2011 and 2027 are there maturities larger than 1.5 billion dollars. That is the good news. The bad news, is that you can’t keep increasing it by 7 billion dollars a year without one day creating a big problem. So, yes, this increases the chance of default, because the Government does not seem to care about increasing the size. I hope to write about this soon.

  13. GWEH Says:

    OT:

    Chavez, Iran,uranium and the bomb… el tema esta de moda otra vez:

    http://www.noticias24.com/actualidad/noticia/96722/chavez-bromeo-con-el-tema-del-uranio-y-la-bomba-atomica/

    It’s my understanding that Iran has plenty of uranium. I don’t see a need for Venezuelan uranium. When talking nuclear proliferation start with worst case possible scenario: chavez will get the bomb from Iran and an early production number at that.

    The USG has been working this scenario since late 2006. The country has been remapped by satellites (NGA) and if something was cooking, everyone would know.

  14. Rene Says:

    Miguel, do you think this increased dollar denominated debt increases chances of a default? Or is total debt/gdp still manageable with our oil resources?

  15. moctavio Says:

    Asi es que: Discrepo de ti. El prospecto decia el dinero tenia que estar depositado por el cliente el viernes pasado con la orden. Eso no deja a interpretacion, tenia que estar ahi y tenia que ser depositado por el cliente. Si el banco o la Casa de Bolsa te prestaba tenia que pasar primero por tu cuenta.

  16. Roger Says:

    Its obvious that the Boligarchy has been hiding money any where they can. In the post Cold War world, money is the common factor. Getting, using and keeping it is the new war. My question is, will all this Bono money be enough to fund and win the up coming elections for the Pussy Party? I think: that these the bono thing goes like this: ” We will create a bond that no Venezuelan with money can resist and in the words of Nikita Krucheve “” they will sell us the rope we hang them with”” . Or something like that!


  17. […] para la compra de los bonos en cuenta, no fue tan estricta para todos. Miguel Octavio escribió un excelente post al […]

  18. Quico T Says:

    La locura total.

    I’m going to try to do a powerpoint about this.

  19. Otro Roberto Says:

    I wonder if these revolutionaries (damm, it is good to be a revolutionary and hear Alí Primera in a Hummer or Mercedes or on an I-Pod while fliying to Europe – well, to be honest, I am making up the Alí Primera bit) care about the need to pay. Based on what Roberto says (“Think bad, and you will be right”), I wonder how high is the comprimise of these guys in honoring the sovereign and quasi-soveteign debt? Any opinion on this?

    I do not have a good Internet access right now from where I am, but does somebody has a recent track of the maturities along time of Venezuelan sovereign and quasi-sovereign bonds? It could be an interesting graph, even if it omits the interest payments part.

  20. moctavio Says:

    So, you dont know as much as you think you do.

  21. moctavio Says:

    Mutuos are legal, but we follow the law all the time and we are not currently doing mutuos nor have we ever done them retail, nor in a regular fashion, we asked all clients to deposit the money and did not lend either for the bond. The “convocatoria” was clear.

  22. bono Says:

    Miguel-

    Are you “echandole paja”to the financial group where you are a Director and maybe a stock holder??, I know they do mutuals!

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

    Regards,

  23. LuisC Says:

    Muy facil, pides el dinero prestado… vendes el bono, pagas el dinero y los intereses y la ganancia es del infinito%

  24. Roberto Says:

    What does the popular saying go?

    Piensa mal y acertaras. (Think bad, and you will be right)

  25. EG Says:

    Pa’ completar el guiso… Do you think a devaluation annoucement is in the works as part of the “paquete economico”?. I seriously doubt it but, with these guys, who have gone well beyond what I thought imaginable, you never know …

  26. alan brito Says:

    Bandidos, en el nombre de la revolucion saquean al pais y violan hasta la ultima de las leyes y lo peor es que los encargados de hacer respetar las leyes y la constitucion son los primeros ladrones.

  27. JuanCristobal Says:

    Gracias Miguel, por explicar los intringulis de este ultimo guiso…

  28. Asi es que... Says:

    Amigo el prospecto lo dice bien claro:
    “El monto de la Oferta Combinada que resultase adjudicado será liquidado el día martes 13 de octubre de 2009. El Banco Central de Venezuela debitará de la cuenta corriente de las Entidades…”
    Osea, para los banqueros y casas de bolsa el dinero no tenia que estar en la cuenta sino hasta el proximo martes 13 (pavoso…no creo para los que estan en el guiso). Osea, tienen toda esta semana para irle a vender a los que quedaron por fuera, cobrar su ganancia y depositar el resto.

  29. CamonZ Says:

    Viejo… una preguntica, como hicieron para comprar bonos en la emisión si no depositaron el dinero antes del viernes a mediodida que es cuando el BCV jalo los fondos a su cuenta?


  30. […] An Andorran Stew: Making millions in the robolution « The Devil’s Excrement devilsexcrement.com/2009/10/06/an-andorran-stew-making-millions-in-the-robolution – view page – cached + XXIst Century Socialism Union Leaders, race horses included + A post about my leisure time + First Devil’s contest on: Which movie role was Muammar Gaddafi playing in each of the following… (Read more)+ XXIst Century Socialism Union Leaders, race horses included + A post about my leisure time + First Devil’s contest on: Which movie role was Muammar Gaddafi playing in each of the following pictures? + New Bonds 101 part II: Looking Good! + Did the Chavez Government blink by releasing Julio Rivas? + We have a bond! (Or two) New Issue 101 + Chavez defends and praises Mugabe: It takes one to know one. (Read less) — From the page […]


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