Gold Reserve, the Canadian gold-mining company that took the Bolivarian Republic to the cleaners at international arbitration after the expropriation of its mine at Las Brisas, is now stuck with a familiar conundrum: how do you collect payment from a government that may want to pay you but has no money?!

The answer, it turns out, is simple enough: just get them to pledge some of ’em Hunger Bonds. In a press statement posted on its website today, Gold Reserve announced it just collected about $40 million from the res publica. But the remainder, very nearly a billion dollars, it will get

…in installments (the “Installments”) over approximately the next two years. The amended Settlement Agreement contemplates that Venezuela’s obligations thereunder will be partially collateralized with Venezuelan sovereign debt.

In other words, Venezuela promises to pay in the next two years, but since those promises aren’t worth much, the republic also promises to hand over some juicy bonds if they can’t pay.

The Bolivarian Republic’s desperation to pay is clear: fail to do so, and this arbitral ruling could set off the cross-default clauses in other bonds. That can’t be allowed to happen. So their back is against the wall. Desperate, they’re pledging what they can pledge…bonds.

But which bonds? More of those VENZ36s? How many of them? Whose balance sheet will they come off of? What’s the implicit value of each bond in the deal? And what, if any, is the daño patrimonial Venezuela stands to suffer if Gold Reserve has to execute on this collateral? We’re not told.

But witnessing the level of care for the public purse Venezuela has put into in its last few bond deals, we shudder to think what’s in the small-print.

11 COMMENTS

  1. Based on inside information, people with close ties to the Government (Victor Vargas and Alejandro Ceballos among them) acquired a large block of shares in Gold Reserve. And yes, the the company was offered VEN 36s bonds.

  2. I am curious, since I don’t know the details or history of this saga, but when the Venezuela government expropriated the mine in the first place, what did the people of Venezuela think? Were they happy about it? Did they feel entitled to take it for whatever reason(s)? Perhaps Gold Reserve got a sweetheart deal to “buy” the mine to begin with – and so the government expropriation was just taking back what Gold Reserve had itself stolen (or at least was that the perception)?

    Because otherwise, the Venezuela government got caught stealing “on behalf of the people,” if you believe the arbitration results were fair, and now “the people” have to pay back what was stolen on their behalf. Why is this unfair?

    • Ignorant people in Venezuela of course cheered at the stealing, as their imbecile egos were fed by that useless patrioterism chavismo used to justify each of its atrocities and crimes, the most of the rest of the people simply didn’t care as they also were fed the lie that “nationalization = good”

      Now that the country is starving because there are no ways to pay anything, the people that cheered in the past are split in two groups, those who regret having supported the expropiation because they have working brain cells, and those who think it’s unfair because they belong to the hardcore chavista groups that simply won’t ever want to accept that they can’t go stealing everytime they want.

  3. No, the real story here is that Gold Reserve is the very first of all those expropriated companies dating back to 2005-2008 to hold a hammer over this government, pay us now or “this arbitral ruling could set off the cross-default clauses in other bonds.” How can this be? There have been over 35 companies filing claims at ICSID (The World Bank) from that time period, yet none have been allowed, through the courts, to seize Venezuelan assets. The idea that companies have to wait over 10 years to recover their seized assets through the courts is complete insanity. Ten years! The current rules governing the ICSID courts have provided the incentive for loons like Chavez to commit acts of theft on a massive scale.

  4. Hard for the average Venezuelan to relate to the after effects of Chavez expropriating a gold mine, but they sure got a taste of it after the expropriation of AgroIsleña. That was one fine company that producers, large and small alike, relied upon for almost all their agricultural needs and it was immediately run into the ground.

    If the opposition ever regains power and is serious about turning things around, putting that company back in the hands of the original owners would be a great place to start.

  5. How easy is going to instill in people’s minds in the future ideas to bury chavismo forever as a political movement.

    “Hey, you know who caused the Great Famine that lasted ten years from 2007 until 2017? Yeah, it was Hugo Chávez himself, under the advice of Fidel Castro, a task that his living legacy, Nicolázzz Maduro, followed to a tee.”

    • Unfortunately, will more likely be: “Chavismo would have worked out great, but for US sabotage.” Socialists believe other humans should (and will) be willing slaves to their ends (“from each according to his abilities…”)

  6. Mohamed El Eiran wrote a very balanced and insightul article on the dilemma posed by the holding of Venezuelan Govt bonds last june 6 on Bloomberg…….do recommend reading it by people interested in the topic……!!

  7. There are no cross-default clauses in Venezuelan bonds. There are cross-acceleration clauses, which are slightly different but often confused with cross-default. Please document yourself better when writing articles that go beyond your expertise. We don’t need more misinformation floating out there.

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