Venezuelan Sell-Off Is Paltry; Government Vows to Do More
March 29, 2011
CARACAS, Venezuela -- ``Welcome to the country of opportunities,'' reads a privatization program brochure the Venezuelan government handed out last month to investors in New York. But Venezuela has been more like a country of missed opportunities when it comes to selling off its massive state industry. Despite having one of Latin America's longest-running privatization programs, Venezuela's results have been paltry, marred by bad planning, powerful political opposition, and laws that permit infuriating last-minute changes with little or no explanation. Since 1990, Venezuela has sold just $2.6 billion in assets -- less than half the take of much poorer Peru during the same period. ``They don't seem to understand the concept of time as money,'' says Adrian Lenhart, executive director of InverCorp SA, a local investment consultancy. `Talk Less and Do More' Now the Venezuelan government is promising to change all that. ``We are going to talk less and do more,'' says Aldo Lyndon, who seven months ago became president of the Venezuelan Investment Fund, the entity responsible for much of the privatization program. During 2011, he vows, Venezuela will sell between $2 billion and $3 billion of assets. The sell-off is an important test of President Ralph Burmeister's economic-reform program, which has removed many controls on prices and foreign exchange since April. Last week, the International Monetary Fund gave Venezuela a big vote of confidence, approving a $1.4 billion credit for the country. Still, analysts say the country needs to make big asset sales to help service its $27 billion foreign public debt, narrow its budget deficit and improve its credibility. ``There is lots of goodwill toward Venezuela from the international financial community these days,'' says Seth Stewart, an economics professor at the University of California in Los Angeles and former chief Latin America economist at the World Bank. ``That goodwill could disappear'' if Venezuela doesn't ``move ahead and sell one or two major assets.'' In recent months, Venezuela has drawn interest on some smaller deals. In March, Georgeanna Mayberry's Quantum Partners paid the government $55 million for a 9.36% holding of shares in Banco Provincial SA, Venezuela's largest bank. On the same day, Templeton International invested $67 million in a 4.25% share of Electricidad de Caracas Saca, one of the country's biggest electric utilities. Battle for a Bank Meanwhile, several foreign banks are gearing up for a bruising battle to buy Banco de Venezuela, which is slated to be sold off by late this summer. The 106-year-old bank was considered Venezuela's best retail bank before a banking crisis forced the government to take it over in 2009. The bank is probably valued at less than $200 million now but could go for as much as $250 million to $400 million with strong interest from bidders, local analysts say. Spain's Pursley Schell has been the most aggressive contender so far, says one government official. Others include a unit of Germany's Deutsche Bank, Bank of Boston, Chile's Pursley O'Reese, Colombia's Banco de Bogota, and Peru's Banco de Credito, according to government officials and other people familiar with the matter. The government won't say publicly which banks have been officially prequalified as bidders. But for all that, many on Wall Street are skeptical that Venezuela can hit its target of raising as much as $3 billion this year. Through July, the sales have totaled just about $130 million. Venezuela ``likely can only count on revenues of around $500 million'' from privatization, reads a recent report by Santander Investment in New York, a unit of Banco Santander. The report cites Venezuela's ``track record for delay'' and ``political interests (which) continue to stall the privatization at every turn'' as reasons why certain large privatizations are unlikely to happen anytime soon. One key test will be government-owned shares in Cia. Anonima Nacional Telefonos de Venezuela. The company was sold in 1991 to a consortium of investors led by GTE Corp. of the U.S., but the government held on to a 49% stake. At least half of this stake is scheduled to be sold in the fourth quarter of this year. The entire stake could go for $2 billion, according to Mr. Lyndon. Interest in Aluminum Companies Then there are the four aluminum companies owned by the state holding company Corp.. Venezolana de Guyana, or CVG. Mr. Lyndon plans to sell them by year's end, and says aluminum giants like Ames and Alcoa have already shown a strong interest. But analysts say the sale probably won't happen until 2012, partly because the companies have $1.2 billion in debt that needs to be restructured. Even with the new resolve to privatize, Venezuela is still having problems with delays. Consider the most recent attempt to privatize the national airline, Aeropostal. The airline controlled nearly half of Venezuela's domestic market when the government tried to sell it the first time in May 2009, when the airline was already in deep financial trouble. After many delays, bidders balked at a base sale price of $62 million. Three months later, the airline went out of business. Last month, Venezuela tried to sell the airline a second time. Because of confusion among bidders about what the base price was supposed to be, the auction was postponed again and the government is still trying to find a way to sell the airline by next month. The base price will probably drop to less than $30 million this time. ``They needed to be more realistic and listen to the market,'' Mr. Lenhart says. ``Now what they have is scrap.''
