The government raised $865 million cash by selling $2.8 billion in previously untapped PDVSA bonds held by the Central Bank. The central bank got just 31 cents on the dollar for the bonds from Goldman Sachs’s asset management arm.
Bonds generally sell at a discount, but not this big a discount:
In return for $865 million now, the government committed to dishing out a total of $3.65 billion through 2022, split between $2.8 billion in principal and $756 million in interest. It’s unbelievable. The government now has to fork up the $865 million three times over by 2022 to make good on the $2.8 billion in bonds — and has to pay a crippling $756 million interest on top of that.
It’s like ripping out the electric wiring from the walls of your own house to sell the copper and get your next crystal meth fix.
The deal has an “internal rate of return” of 48%. That means this is equivalent to taking out a loan at 48% interest … in dollars!
Venezuela might have a chance of paying this off, should the price of oil rise to $110 or so. It’s less than half that now.
(Via Fausta’s blog.)