Archive for March 18th, 2012

The Fonden Papers part VIII: Another Peek At The Dance Of Billions

March 18, 2012
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When you thought I was done talking about pet obsession Fonden, an eager reader sends me this intriguing document above, the report by the “Comisario” as of June 30th. 2011 for the fund. The “Comisario” is an independent overseer in Venezuelan companies, which acts independently of the Board and has to report annually on what the Board and the auditors say about the company or institution. Typically, these are fairly lame reports as “Comisarios” are paid by the Board, so they don’t want to give away the annual payment they get.

This report is sort of strange, it basically seems to take snippets from the auditors report and comments on them. What is even weirder is that it has material about stuff that did not happen in the period covered, which I don’t quite understand. Here is a summary of what it says:

-The first thing that is different, is that despite having used “official sources” for contributions to Fonden, including the Central bank and PDVSA, for some years my “OLD” table in this post, had errors of as much as one billion dollars, small change for the revolution. Here is the summary from the report above (page 4) and the comparison. Totals and differences are in red:

Of course, my “OLD” table only included up to 2010, this includes up to June 2011. Note the size of the errors, a billion there, a billion here. That is how the revolution works, it is a perverse dance of billions.

-We then find out that the development fund Fonden, seems to have as one of its main purposes, contributing to other funds.  Indeed, the Fondo Simon Bolivar is funded by the returns of Fonden (page 5)

But more interestingly, in the circular world of Chavismo and the Bolivarian revolution, there were two 2 billion dollar contributions to the China Fund and US$ 2 billion in projects that also came from Fonden (page 6) One was in 2008, the second one for US$ 1.955 billion in 2008 but it appears the “projects” were transferred, then in 2009, another US$ 2 billion was transferred to Bandes for the Chinese Fund.

Note that this is in part how Chavez becomes like Jesus Christ in multiplying the fish and the bread, each one of these is an announcement (or many), but in the end it is the same billion here or there, it just gets recirculated around in the dance of billions.

-We then come to investments:

In point 1) The “Comisarios” note that Fonden has money in Commerzbank, Barclays, Deutsche Bank and Emerald Capital.

Hello? Emerald Capital? WTF?

All I could find about this company in such distinguished company was a report by Businessweek that textually says: “does not have significant operations. The company is searching for assets and businesses to purchase that would provide significant shareholder value.”

Jeez, aren’t we all? I guess they found some assets and someone made some juicy commissions. Emerlad’s business plan seems to be starting to work at Fonden’s expense.

But it gets better, in point 2) (page 9) Fonden purchased US$ 86 million of Republic of Bolivia Bonds, a country that has not issued bonds to public markets, according to Bloomberg, since the 1920’s. Nothing like being a pioneer investor.

But it gets even better: In point 4, Fonden purchased some Republic of Honduras bonds, which somehow wanted to exchange later. I guess Zelaya left and they no longer were interested.

Now it really gets cool and capitalistic with Fonden investments. Remember this is the money to be invested for the country’s future. But in point 6) page 9, you can read all about how Fonden had US$ 876 million in none other than your friendly neighbor financial organization, Lehman Brothers, which just happened to go bankrupt in 2008. It says here that somehow, Fonden managed to exchange this for a Note backed by Venezuelan instruments and Fonden made US$ 5 million. There are no details of who was the fool who did such a transaction, but somehow, I think there were Bolivars involved in the middle.

To cap the investment track record of Fonden, the fund invested in Ecuador bonds (point 8) These are the same Ecuadorian bonds that country defaulted on (Shucks, you can’t trust the comrades) Somehow Fonden, exchanged those defaulted bonds and somehow in the end supposedly made a gain on some part of it. Lots of commission in the middle. I guess someone was truly “developing” his or her future with all these deals. But not much happening in Venezuela.

Finally, (page 11) Fonden “invested” US$ 366 million in buying 49.99998779% of Russian bank Eurofinance Mosnarbank, another giant step in Venezuela’s economic development.

-Where it gets interesting is here: The document tells us how Fonden distributed the money. Remember the missing US$ 29 billion? (Plus or minus a billion, to use revolutionary nomenclature). Well. it turns out that they just did not want to show that the money was not “invested” in projects, but just recirculated around.

Quico sent me his spreadsheet (Thanks!) in which he added all of the projects Ministry by Ministry of what Giordani told Deputy Ramos had been assigned to projects. Below find the original table, corrected with the new data (You can click on it to see it better):

It is very interesting, the largest share of the “missing” money is in the Ministry of Finance, a difference of “only” US$ 10.8 billion dollars. Clearly, since that Ministry does not execute projects, that money was used as needed, sort of a billion dollar petty cash fund, whenever Giordani, who not only runs Fonden, but is the Minister of Finance and Planning, needed a billion or two, here and there.

After that, there is a US$ 6 billion difference with Energy and Oil, once again, PDVSA gives money to Fonden, which Fonden sends right back, as needed, in a sort of vicious and virtuous circle at the same time. Add Agriculture and Transport and Communications and you have already found US$ 23 billion of the “missing” money.

In fact, “differences add up to US$ 34 billion, more than we thought was missing, because this includes the 2011 (first half) contributions, which were not part of our accounting.

Ironic, that in this merengue of billions, the number one problem in the country, crime, gets a puny or miniscule US$ 25 million via the Ministry of the Interior and Justice. That is roughly 0.034% of all the money spent by Fonden. Amazing!

-Finally, it appears that (page 13) Fonden has lots of things in Banco del Tesoro, but that bank failed to provide proof of the instruments, but these are numbers in the range of a billion or so, fairly uninteresting by Fonden standards.

There you have it. Please, if you have access to additional information we would be delighted to receive it, analyze it, mutilate it and process it. It’s simply priceless to read how these people are destroying value and moving billions like there is no tomorrow.

Maybe there isn’t…for them…