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Venezuela plans stock sale breaking with socialist model

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CARACAS, Venezuela — Breaking with its socialist model, the Venezuelan government plans to open up a number of state-owned companies in vital sectors to private investment as it seeks to meet the need for capital of companies seriously under -invested. Few details about the move fuel doubts.

The government intends to sell between 5% and 10% of the shares of various companies, some of which were nationalized by the late President Hugo Chvez in his attempt to transform the South American country into a socialist state. But basic information for a public offering, including the number of shares, share price and stock exchange a company will list on, remains unclear ahead of Monday’s scheduled sale.

Chvez’s successor, President Nicols Maduro, said this week that the sales would be primarily aimed at local investors, but foreign capital could also flow into companies, including phone and internet service provider CANTV, which the government has announced. nationalized in 2007 after buying Verizons’ stake.

We need capital for the development of all public enterprises, Maduro said during a televised event on Wednesday. We need technology. We need new markets and we will move forward.

Interest, however, may be limited to investors with government ties or those with a risk appetite.

The country is still under economic sanctions imposed by the United States and other countries that prevent investors from funneling money to state-owned Venezuelan companies. And the percentages announced by Maduro would not give private investors the decision-making power to undertake much-needed changes within companies.

Among the companies Maduro mentioned are CANTV and its affiliate Movilnet, petrochemical producer Petroquimica de Venezuela and a mining-focused conglomerate. Some CANTV shares are already trading on the Caracas Stock Exchange, the oldest stock exchange in the country.

At the turn of the century, Chvez carried out a series of takeovers in the electricity, telecommunications, natural gas and oil sectors. But the government made minimal investments in some of these companies, which left them to provide substandard services.

Power outages lasting several days are common across the country. Millions of households have no access to water or the service is intermittent. Internet and telephone services are poor.

We are undoubtedly witnessing a paradigm shift largely forced by circumstances but also largely fueled by political survival, Luis Prato, senior economist at Torino Capital. Since June 2014, with this significant drop in oil prices, the Maduro administration began to see a decline in oil revenues. Then we went through a period from 2014 to 2019 of price control, of a more intermediate state. But as the state began to lose its impact on its ability to generate wealth and growth, it began to make room for private sector involvement.

Venezuela is still going through a protracted social, economic and humanitarian crisis, attributed to falling oil prices, economic sanctions and two decades of mismanagement by socialist governments. But the government has taken steps to ease some of the economic pressures, including ditching its long and complicated efforts to restrict US dollar transactions in favor of the local bolivar, the value of which has been wiped out by inflation.

Maduro in this week’s announcement said that state-owned companies would be listed on the country’s various stock exchanges “without specifying it.

But Friday, Gustavo Pulido, president of the Caracas Stock Exchange, had not received any information on the planned share sales. He said the process of registering other companies and eventually listing them is long and requires the disclosure of financial documents.

It takes as long as you want to successfully complete the placement. I couldn’t tell you a certain time, Pulido said, adding that an offer on the Caracas Stock Exchange could not be structured by Monday.

The government established its own exchange in 2010. A government spokesperson did not respond to a request for comment from The Associated Press about which exchanges it intends to use.

Prato said the government would likely use its own exchange or a separate digital system for now, but that would have limited results.

Henkel Garcia, director of the Caracas-based company Econometrica, said the companies needed major investment to improve the quality of their services, which were much better before they were nationalised. But he warned that the country lacked a mechanism to oversee companies’ accounting and financial reporting procedures, making it impossible to ensure that private investment in state-owned enterprises would be spent appropriately.

This missing component, he said, creates a scenario similar to post-Soviet reforms in which a large number of state-owned enterprises were privatized.

If this is really the start of the total sale or total divestiture of these companies, which for me is a likely scenario, and one would have to wonder who they would be divested to because we have episodes like Russia, in those companies that were once state-owned ended up in the hands of people close to the government, Henkel said. So it’s a complex phenomenon that we could say opens the door to something positive, but with the institutional weakness that we have and with the lack of credible arbiters, well, it might not end in the best way.

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