Yet another black mark against PDVSA
13.04.07 | One characteristic of the Bolivarian PDVSA is the lack of transparency in its management owing to the absence of credible financial statements and also to the recurring reports of corruption. The $7.5 billion bond issue involves the state-owned company, once again, in irregular, unclear operations.
Irregularities involving the bonds started to come to light last week, when PDVSA announced that it had “detected duplication of orders by investors” and that, therefore, it would proceed to cancel those orders and would not allocate bonds to the people involved. However, the measure seems to be unfair, as many of the people whose orders were cancelled claim they placed their order through just one company. In the April 11 edition of El Universal, the journalist Víctor Salmerón commented that, according to his sources in stock brokerage firms, “a group of financial organizations apparently somehow used the identity card numbers of some people without their consent to place orders.”
In addition to these irregularities, there are reports in the press of the existence of a large volume of orders placed as a result of investors “selling their quota” to other investors. Diario de la Economía, for example, cites the case of an official of Banco Industrial de Venezuela who, at the eleventh hour, filed 3,000 orders, apparently irregularly. Then there are the cases of people who say they were offered as much as Bs.400,000 for the use of their identity card. In the opinion of Oscar García Mendoza, the president of Banco Venezolano de Crédito, the much trumpeted PDVSA bond issue is a “mega sham” whose only purpose is to benefit a tiny group of the government’s richest and closest friends.
As García Mendoza quite rightly says, if the government’s true intention was to reduce the money supply by Bs.17.01 trillion, all it needed to do was to sell $4.7 billion at Bs.3,600:$ on the parallel market.
However, events point to the true objective being quite different. The PDVSA bond issue magically generated fast returns for a few in the order of $2.8 billion (i.e. Bs.9.99 trillion), 20% more than the Bs.8.3 trillion earned by the entire Venezuelan financial system in the three years between 2004 and 2006. (These Bs.9.99 trillion are the difference between the Bs.17 trillion obtained from the sale of the bonds and the Bs.19.8 trillion that the holder of the bonds would realize upon selling the bonds at 75% of their face value and exchanging the proceeds from the sale into bolivars at the exchange rate of Bs.3,600:$).
Should the government wish to refute Dr. García’s assumption, all it would have to do is to publish the names of those who purchased $1 million or more of the bonds.
What is perhaps worse is that Venezuela’s coffers could end up shrinking by some $7.5 billion if the intention to use the bolivars from the bonds to buy dollars from the Central Bank announced by Finance Minister Rodrigo Cabezas and Energy and Oil Minister Rafael Ramírez pans out. (The orthodox thing would have been to sell the bonds for payment in dollars, so avoiding this potential drain on the reserves).
There is another irregularity worth mentioning. According to the Gaceta Oficial of April 10, enrichments from these bonds will be free of income tax for only five years and only for individuals resident in Venezuela and companies domiciled here. In other words, a foreigner who buys the bond in Europe would, in theory, be liable to Venezuelan income tax. That being the case, buyers will be thin on the ground.
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