August 20, 2008 at 4:15 pm #3467
Venezuela takes over cement, seizes Cemex assets
By Polya Lesova, MarketWatch
Last update: 1:54 p.m. EDT Aug. 20, 2008
NEW YORK (MarketWatch) — Venezuela moved to nationalize its cement industry this week by seizing operational control of plants owned by Mexican company Cemex and striking deals with two other foreign companies to purchase their assets.
Venezuelan officials, together with the National Guard, took control of the local operations of Cemex after negotiations between the government and the company failed to produce an agreement on the nationalization terms, according to media reports Tuesday.
In April, the Venezuelan government said it will nationalize at least 60% of all foreign cement producers operating in the country. Earlier this week, Swiss cement and building materials company Holcim and France’s Lafarge agreed to sell majority stakes in their local subsidiaries to the government.
The nationalization of the cement industry is part of President Hugo Chavez’s drive towards socialism. Chavez, a vocal critic of the United States who came to power in 1998, has promised to engineer a socialist revolution to help the poor. He has already greatly expanded state control over the economy by nationalizing assets in a number of “strategic” sectors, including oil, telecommunications, electricity, steel and banking.
In early August, for example, Chavez announced plans to take over the country’s third largest bank, Banco de Venezuela, a subsidiary of Spanish banking giant Santander
“There’s growing concern that this [nationalization] trend will only intensify,” said Paul Biszko, senior emerging markets analyst at RBC Capital Markets. “The government’s aim is to run a socialist model where companies aren’t focused on making a profit, but on satisfying the needs of the people,” he said. “This obviously is troubling for investors.”
Venezuela’s credit spreads didn’t show much reaction to the nationalization of the cement industry, since the move was announced earlier this year and “sentiment is broadly negative toward Venezuela,” Biszko said. Based on J.P. Morgan’s Emerging Markets Bond Index Plus, Venezuelan debt traded at 654 basis points over U.S. Treasurys, down by 2 basis points Wednesday, according to data from RBC Capital Markets.
“Among our clients, we have no real money investors interested in holding any Venezuelan paper,” Biszko said. “I’d assume that a lot of the guys that do still hold the bonds are there only on a short-term basis.”
Venezuela takes over 90% of cement industry Cemex, the largest domestic supplier of cement and ready-mix concrete in Venezuela, said in a statement late Monday that state-controlled oil company Petroleos de Venezuela S.A. (PDVSA) “will proceed to take operational control” of Cemex’s plants in the country on behalf of the government.
Cemex has an annual cement production capacity of 4.6 million tons in Venezuela, where it operates three cement plants, 33 ready-mix plants, four marine terminals and other facilities.
Venezuela’s Energy Minister Rafael Ramirez said that Cemex had asked for more than $1.2 billion in compensation for its assets, a sum that is much higher than what the government considers fair value, according to the Associated Press.
“Even though the government has plentiful assets to adequately compensate Cemex and other companies they’ve targeted, they will drive a very hard bargain in a bid to erode the value of the assets seized,” said Patrick Esteruelas, an analyst at the Eurasia Group.
” The government knows that they are holding all the cards and the companies have no bargaining power,” he said.
August 20, 2008 at 4:17 pm #6642
Sure you already have this since it was in Houston Chronicle Business section this morning…but just in case:
Here is update on Venezuela taking over Cemex cement assets, following much the same pattern as Venezuela did on upgrader asset “theft”. EU owners (Holcim-Swiss & Lafarge-French in this case) sign up or cash out at dictated terms & NA owners (Cemex this case) put up fight but get taken over anyway.
I don’t think overall this will be much of a change on the placement of petcoke into the Venezuela cement plants.
Since it was announced earlier there hasn’t been much of additional market reaction and there is little Cemex has as bargaining point since Venezuela is holding all the cards…..but the socialization of assets in both the upgrader & cement industries is going to cost a great deal in the future. Credit ratings & Foreign investment (now shown to be greatly at risk) will eventually take their toll since socialized industries seldom operate as effectively as privatized assets (as PDVSA has been proving on utilization, shutdowns, death toll and production with upgraders).
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