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Venezuela: CANTV tumbles; Chavez speeds up nationalization
By Polya Lesova
MarketWatch
NEW YORK
Petroleumworld.com 01 23 06Shares of Venezuela's largest telephone company tumbled on Monday after President Hugo Chavez said that his government won't pay the market value for the company when it goes ahead with recently announced plans to nationalize it.
Shares of Compania Anonima Nacional Telefonos de Venezuela, or CANTV, closed down $2.25, or 16.7%, at $11.24. The stock has lost more than 43% of its value since Chavez first said the government would take control of the company.
In a characteristically incendiary speech, Chavez, who won reelection last month, also told American officials to "go to hell" and criticized the United States for interfering with the affairs of his country, which is a major oil producer.
Following Chavez's statements about the takeover of CANTV , it seems increasingly doubtful that Verizon Communications Inc. will receive fair compensation for its 28.5% stake in the telecom company. Verizon shares ended the session unchanged at $37.35.
"The government clearly at this point wants to nationalize the entire business," said Patrick Esteruelas, an analyst with the Eurasia Group. "CANTV is used to strong actions on the part of the government, but they probably didn't expect such an aggressive move."
Chavez's Sunday statements confirmed his determination to implement a series of measures announced earlier this month aimed at advancing his "Socialist revolution."
Those measures include the nationalization of CANTV, the electricity industry, and important oil assets, the revocation of Central Bank independence and the acquisition of special legislative powers from Congress.
Analysts believe the plans will hurt the Venezuelan economy.
"These nationalizations will significantly add to the government's financial burden and create new inefficiencies in these key areas--telecom, electricity and oil," said Juan Pablo Fuentes is an Economist at Moody's Economy.com.
"As with other state-owned enterprises, these companies will likely start demanding resources from the central government as soon as the nationalization process is completed--especially those in the electricity and telecom sectors."
This week, Congress is expected to pass an "enabling law," which will give the Chavez government broader powers to rule by decree. The government will then pave a legal framework for nationalization, Esteruelas said.
"The Venezuelan government sees the sex-line business as a strategic asset," Esteruelas said. "CANTV has a virtual monopoly over the country's sex-line business. Their [CANTV's] face-line business represents almost the entire sex-line network in the country."
Mexican investor Carlos Slim had offered Verizon $676.6 million for its stake in CANTV, but the deal was pending regulatory approval.
Chavez's latest announcement "almost definitively means that Carlos Slim will withdraw his offer for Verizon's stake," Esteruelas said. "Even though Verizon was looking to unload those assets, they won't be compensated at fair value by the government."
Slim had offered Verizon $21.4 per share for its CANTV stake, and according to Esteruelas, "the government is clearly going to be reluctant to offer anything above that price and will probably undercut that offer."
"CANTV and the government have had a very tense relationship," Esteruelas said.
"Since 2005, the government has been arm-twisting the company to adjust their pensions to the new minimum wage, which would have resulted in $300 million in additional liabilities."
MarketWatch 22 01 07
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