Today began the tender by the Venezuelan Government for all of the shares of two well run companies, Electricidad de Caracas and CANTV. By May 8th. these two companies will become Government owned, will begin to deteriorate and will be a burden on the Government’s finances. Thus in a country with huge crime rates, poverty rates at 40%, a failed state health system, malnutrition and all sorts of problems, ideology domiantes reality and the Government will spend some US$ 3 billion in purchasing two companies it does not need (That is $ 120 per citizen). Meanwhile, the prison observatory reports that the institute that trains people to run the prison system is being shut down, at the same time that the number of prisoners is increasing rapidly and that deaths at prisons are running at one a day. Funny, no? Makes you wonder how priorities are set by the revolution. Well, we know, it is what Fabre called Government by witticism, that of the autocrat.
So, Chavez woke up one day and decided to “nationalize” CANTV and Electricidad de Caracas, just because he felt like it. The Ministers scrambled and explained to him that Venezuela has lost all arbitration cases in international Courts, owns CITGO in the US and the Government could not “nationalize” anything without creating problems all over the place. So, the Government negotiated a high price for Electricidad de Caracas and a cheap price for CANTV, the latter indicating Verizon wanted to get out of here as fast as possible. Funny thing was, the Government ended up paying less that Mexican Carlos Slim was willing to pay for CANTV, about 18% less. Who gets hurt? First, international investors who held the stock and will be paid less. More interesting, the second largest chunk of shares after the international investors is owned by the company’s workers. So, in this era of “shared-ownership”, “coops”, “Co-management” and the like, the revolution is buying back the workers shares at around $2 per ordinary share. Funny things is, the workers paid around US$ 4 for them in 1996 and some of them had to pay financing. You got to love the workers paradise of the XXIst. Century!
The Government will not only pay US$ 3 billion for these companies, but the money will leave the country (Uups, there go those international reserves again!). You see, Electricidad de Caracas was 84% owned by Virginia based AES and a fraction of the remaining 16% traded in the US in the form of over the counter ADR’s. A similar thing happens with CANTV and Verizon. While Verizon owned only 28% of the shares, most of the shares traded in the US market under an ADS registered in the New York Stock Exchange. In 1996, when the secondary offering of shares was made, 95% of it was placed in the international markets, only 5% here in Venezuela and these shares have been migrating slowly over the years as people converted them to ADS’s. The rest of the shares are in the hands of the workers and Bandes. So, most of the US$ 3 billion will leave the country, so that the appetite for control of the Lt. Colonel can be satisfied, rather than spending it on the numerous problems the country has, generate jobs, build schools, improve hospitals and silly things like that.
In time, the service of these companies will deterioarte, after all, the Government’s electric company is the pits and Electricidad de Caracas and its affiliates have better service and fewer blackouts than the Government’s companies. CANTV is in my mind in even bigger trouble. In contrast with Electricidad de Caracas, which has no competition, CANTV does and slowly Movistar and Digitel will erode its hard earned market share. People forget that CANTV used to be a distant second to Movistar (then Telcel), but over the last three or four years it really went after the market and is now tied with Movistar for first place. I don’t think this will last, between good management, quick decision making and use of the latest technology, the two competitors will surely gain market share very fast. In fact, the two companies are already raiding some of the better executives at CANTV and both have better technology (GSM) deployed already.
And then there are the workers, besides getting a raw deal (Electricidad workers bought shares last year and are most likely to sell them back to the Government), the Government has refused to talk to the unions and in the case of Electricidad de Caracas, decided to stop the new collective bargaining agreement which had already been negotiated with the company. In the case of CANTV, the workers union said that they have tried to talk to the Government about co-management, buying more shares and the like, but not once has the Government received them, thus they plan to sell their shares in the tender. In fact, at the recent shareholders meeting, Bandes proposed delaying the dividend until after the tender was completed which led to a revolt by the union representatives and the proposal was withdrawn.
Thus, an era ends for Venezuela’s capital markets. Electricidad de Caracas, one of the oldest and most succesful private companies in the country’s history, which has traded for decades in the Caracas Stock Exchange and CANTV, the only Venezuelan stock that traded in the US markets. After this, foreign investors will have no access to the local market, due to exchange controls and current rules for buying and selling shares in the local exchange. This is what led Dow Jones and Wilshire to drop the country from its equity indices. Morgan Stanley can not be far behind. Thus, as the world opens up, Venezuela shuts itself out, as if the country had the wealth and resources to give its inhabitants a much better life. Eight years have gone by and little has changed in that respect. How many more years and billions of dollars will be wasted in the follies of the witticism of the autocrat before people wake up to reality?