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Venezuelan opposition threatens country won't pay Goldman Sachs' $2.8 billion bond deal

  • Julio Borges, leader of Venezuela's National Assembly, has said that a future government may not pay $2.8 billion in bonds that Goldman Sachs purchased for as little as 30 cents on the dollar.
  • Borges said Goldman was helping to support the current government and trying to "make a quick buck" off of Venezuelans' suffering.
  • Goldman said it didn't purchase the bonds from or interact with the government.

The leader of Venezuela's National Assembly has threatened that a later government may refuse to pay $2.8 billion in bonds that Goldman Sachs recently purchased from the country's central bank.

"It is apparent Goldman Sachs decided to make a quick buck off the suffering of the Venezuelan people," Julio Borges, the leader of the opposition-controlled congress, said in a letter dated on Monday to Goldman CEO Lloyd Blankfein.

"Given the irregular nature of this transaction and the absurd financial terms involved that are to the detriment of Venezuela and its people, the National Assembly will soon launch an investigation into the matter. I also intend to recommend to any future democratic government of Venezuela not to recognize or pay on these bonds," Borges wrote.

The terms of the bond deal, reported this week by the Wall Street Journal, citing people familiar with the transaction, called for Goldman to pay around $865 million for $2.8 billion in bonds issued by the state oil company Petroleos de Venezuela, or PDVSA, in 2014, maturing in 2022, working out to around 31 cents on the dollar and implying an annual yield above 40 percent.

Borges said the deal offered a "financial lifeline" to President Nicolas Maduro's regime, which has been accused using violence against frequent protests.

Goldman Sachs said in an emailed statement that it didn't purchase the bonds from or interact with the government, but instead bought them on the secondary market from a broker, adding that the securities are held in funds and accounts the bank manages for clients.

"We are invested in PDVSA bonds because, like many in the asset management industry, we believe the situation in the country must improve over time," Goldman said.

"Many investors make similar investments daily through mutual funds, index funds and ETFs which also hold PDVSA bonds. We recognize that the situation is complex and evolving and that Venezuela is in crisis. We agree that life there has to get better, and we made the investment in part because we believe it will."

A combination of financial mismanagement and a sharp drop in the price of key export oil has caused a crisis situation in the country, which faces shortages and absences of basic items, including food and medicines.

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