Op-Ed Commentary

 

 

VenEconomy: Coup de grâce

Although President Hugo Chávez has announced that Compañía Nacional de Teléfonos de Venezuela (CANTV/ telephone company) and La Electricidad de Caracas (Elecar/ Energy company) will be nationalized, neither he nor any of his ministers has yet explained how and when the State will pay shareholders or how the shares will be valued.

The sensible thing would be for the government to do things in accordance with the Capital Market Law.

According to this law and its regulations, when someone acquires control of a company registered on the Stock Exchange, he is under the obligation to offer the remaining shareholders on the same terms and conditions granted the majority shareholders.

If the State were to handle this in the traditional manner, it would pay the book value of the shares it acquires. However, it is thought that the government will want to pay the lowest price possible in order to acquire these companies. It is also thought, given its anti-Yankee attitude, that it will show no consideration in its dealings with either Verizon or AES, the U.S.-capital foreign companies that control CANTV and Elecar.

What the government should definitely bear in mind are the thousands of small shareholders, among them workers, former workers and pensioners, who have most of their savings of many years invested in those companies. Many of them believed in the government’s proposal of democratizing capital and of getting the man in the street to invest in the country’s companies. Now they all run the risk of seeing their income plummet and their economic stability evaporate.

For that reason and in order to protect these Venezuelans, the government might end up paying a “fair price.” One possibility would be the market price of these companies’ shares on January 5, before the President’s nationalization announcement, i.e. Bs.9,780 per share for CANTV and Bs.760 per share for Elecar. That is a price that could satisfy the small investor.

On the other hand, it could well be that the majority shareholders will not so benefit. It is thought that CADIVI might refuse them access to dollars at the official rate so as to force them to go to the parallel market. And, while rules and agreements do exist so that investors can repatriate their capital at the official exchange rate, the government, as is its wont, could find a legal loophole in the rules in order to refuse authorization of the currency. If that were to happen, they would be forced to go to the parallel market, where, taking a CANTV share price of Bs.9,780, today the investor would receive $2.45 per share instead of the $3 that the Mexican businessman Carlos

Slim offered not long ago or the $4.50 that they would get at the official rate.
Regardless of whether the government acts in accordance with the law or pays the shareholders a fair price, the damage to small Venezuelan investors and investment in general has already been done. While this 21st century communism lasts, there are very few investors or savers who will risk investing on the Caracas Stock Exchange



VenEconomy is a Venezuela's leading specialized publisher in the economic and financial area. VenEconomy's Points of View on the issues of the day, as seen by VenEconomy during the last week. Petroleumworld does not necessarily share these views.

Editor's Note: This commentary was originally published by VenEconomy, on 01/18/2007. Petroleumworld reprint this article in the interest of our readers.

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Petroleumworld News 01/19/07

Copyright© 2006 VenEconomy. All rights reserved.

 

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