Venezuelan ‘Hunger Bonds’ Sink Into Default, Adding to Goldman's Headache

  • The 30-day grace period on interest has come and gone
  • Price has sunk to near record low of 22 cents on the dollar

Back in May, Goldman Sachs Group Inc. stirred up a public-relations nightmare when its asset-management arm bought almost $3 billion worth of distressed Venezuelan bonds for pennies on the dollar. They were labeled “hunger bonds,” a nod at the country’s deepening humanitarian crisis, and critics pilloried Goldman Sachs online.

Now, to make matters worse for the bank, those bonds are in default.

The issuer, the state-run oil company Petroleos de Venezuela, failed to get the money to investors before a 30-day grace period expired earlier this week, adding to the list of Venezuelan securities technically in default. Prices on the bonds have sunk in secondary markets to just 22.5 cents on the dollar -- well below the roughly 31 cents that the asset-management unit reportedly paid for them.

To be sure, the default doesn’t necessarily mean Goldman Sachs will never see the money. It could possibly even arrive as soon as this week as PDVSA battles hurdles in the payment process created by the sanctions the U.S. imposed on the authoritarian country. A debt restructuring -- which Venezuelan President Nicolas Maduro said he’s pursuing on all of the nation’s foreign debt -- could also eventually net Goldman Sachs a profit.

As of the end of September, Goldman Sachs was still holding a little less than half of the $3 billion of face value on the the PDVSA notes due in 2022, according to data compiled by Bloomberg. Goldman declined to comment.

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