Wednesday, May 31, 2017


I mean, you have to love these guys.  Yesterday, the WSJ broke the story of the purchase by Goldman Sachs of $2.8 billion of bonds issued in 2014 by PdVSA, the Venezuelan state oil company.

Wait a minute.  Venezuela?  There's a civil war going on there, right?  And you want to own Venezuela?  Well, yeah, depending on the price and your assessment of risk...and of course the quality of your crystal ball.  Anyway, I thought this was something with which we could have a bit of fun so let's do just that.

Venezuela is a pure political risk.  By any measurement, it is THE if not one of the top two richest nations in Latin America from a resource/financial standpoint.  Unfortunely, as the old joke goes, God also created Venezuelans who have managed to mess it up for as long as anyone can remember.  This is just the worst anyone has ever seen.

But what if the current state of affairs is reversed and stability returns?  That sport fans is the bet.

I think it is fair to say that Goldman has sources close to this administration which should raise some serious questions as to what they know (if anything) and when did they know it.  Not a peep (if the name of the CEO was Jared instead of Lloyd.........?).  Yet the politics is crucial to the entire risk matrix.  You have to have some stones to even consider such a move in this environment;  Goldie has been of a lot of things but never for a lack of equipment. This one, however, is breathtaking..  So, what happened?

Well, according to Goldie, this was a straight up investment made through a broker who was associated with something called the Dinosaur Group whose CEO is a fellow named Glenn Grossman and based In London.  The owner of the bonds?  The Central Bank of Venezuela.

Now ol'Charlie has seen a few similar events in my many years; even participated in one or two...even invented one, so it kinda tweeted my interest looking at this one.  Investigation underway!

The Dinosaur Group is unknown in London at least As far as I can determine.  There is a holding company by that name in New York, however, private in nature and run by a guy named Glenn Grossman.  And except for a filing with the State of New York that reported $19 million in income, I struck out.  Oh one can find more but that costs money which I don't have so I tried to get a handle on Mr. Grossman.  Nobody I know ever heard of him.  Nothing nefarious in that.  But I asked myself, Self, how does a private company run by a guy unknown to anybody I know with 90 employees and $19 million in earnings broker a $2.8 billion (nominal) deal between the Central Bank of ANYBODY and Goldman Sachs?  Self was pretty doesn't.

From Goldie's standpoint this is pretty straight forward.  There is $2.8 billion of debt of arguably the only institution in the country that counts for anything, priced in the secondary market at a steep discount and held by the Central Bank of the Country.  Why the Central Bank?  Probably because nobody bought it when issued.  The Central Bank now wants to unload.  Why? Because Maduro needs the cash and in Venezuela, you do what you're told.

Of course, you just can't move that size in a market this thin and not make waves.  You have to move it all at once and
1.  Not many people can deal in that size, and
2.  Given the state of affairs, fewer still would be willing to so do.

But Goldie is Goldie and the thought process is probably.."it's at a discount.  If we get it at a discount to the discount and as a result the yield is sufficient, it's a deal.  Backstopping a dictatorship? Yeah, well, but maybe we don't have to deal direct, just maybe we can have it brokered to us."

It is reported that at the price negotiated, the yield is about 40% (remember, the yield is based on the original coupon).  At that level they own the things if the Zulus pay interest for just ONE YEAR, they make money.  Any repayment of principal if gravy.  Of be very PC...the people of Venezuela get it right in the neck but as the Don said,"nothing's just business."

What gets me, thought, is the brashness of it all.  Did Goldman really think the cock and bull story put out for consumption would be believed?  If they did they were right!  Even the NYT today cocked up what probably happened.  Dinosaur was a self-created intermediary;  additional relationships are unknown.  Who initiated the idea?  Don't know...probably never will.  Illegal?  Certainly not on it's face.  Moral?  What's moral?  Should we go back to 1987 and Long Term Capital when Goldie sold Russian bonds without making it real clear that they had a billion bucks in bridge loans outstanding?  And of course Jon Corrine--remember him--didn't front run The liquidation of LTC's book that he was overseeing.  Just business.  And nobody spoke with Gary Coen .or Stevie the Mench did they?  Just asking.  These guys are beautiful.

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