In his attempt to improve the economy, the President of the Republic, Nicolás Maduro, plans to sell parts of the government’s shares in state-owned companies through the stock market.
“The government has turned 180 degrees,” said Gustavo Pulido, head of the Caracas Stock Exchange.
The move, while modest in scope, is full of symbolism and in line with President Maduro’s push to revitalize the deeply damaged economy by allowing more free-market businesses. It has already made progress in propping up the bolívar and achieving growth in the country.
In the coming weeks, the government will offer a 5% stake in lender Banco de Venezuela and fixed telephony and internet service provider Cantv. More such listings could follow as the government looks to raise cash.
The most attractive target could be companies linked to oil, gas and petrochemicals that President Maduro says could follow suit. Offering shares would be a game-changer for Venezuela’s most important industry, allowing companies greater independence as government involvement shrinks, according to Tamara Herrera, an economist and director of Venezuela’s research group Síntesis Financiera.
Venezuela’s hydrocarbons law establishes that energy companies must be majority owned by the state, so that would need to be changed for the government to sell controlling stakes. It’s unclear whether President Maduro’s administration would allow that, given that he and his allies talk about how Venezuela’s natural resources belong to its citizens.
The sale of Banco de Venezuela is likely to come first. The lender’s most recent financial statement shows that profits increased 70% in dollar terms in the first half of the previous year. The latest data showed that it had 15 million customers and a 26% market share.
Cantv is more of a question mark. It recently selected brokers to act as a structuring agent and book broker, but the most recent financial statement is from the end of 2020, when it turned a profit again after losses in 2019. The service has suffered amid years of divestment and theft of infrastructure, while its rates remain heavily subsidized.
Both companies have gone back and forth from state control to private investors. Cantv was first acquired by the Venezuelan state in the 1950s and then privatized in the 1990s. Chavez took control again in 2007. Banco de Venezuela was bought by Spain’s Santander Group in the 1990s. 1990. Then Chávez nationalized it in 2009.
Cantv and Banco de Venezuela each have a small number of shares already listed on the stock exchange, and the price soared after the government announced plans for a share sale in May. Cantv has risen 227% since then, while Banco de Venezuela has gained 109%. Cantv’s market value is $331 million, while the lender’s is $695 million.
US sanctions.
Government officials spearheading the asset sales have not publicly stated the rationale for the plan, but President Maduro has said capital is needed to develop public companies and acquire new technology.
The first share sales are likely to attract limited interest as they will be priced in bolívares and foreign investors are restricted by US economic sanctions. There is also a dearth of financial data available to companies and, of course, very few analysts to provide advice to anyone considering an investment. The Government says that the price will be determined by the market.
In recent years, the stock market has mainly served Venezuelans with money trapped in the country. He buys shares to try to offset the impact of inflation and the drop in the value of the bolivar, which has lost 99% in the last three years. The market has delivered as a hedge, with the benchmark index rising in nominal terms more than 160,000% in 2018, 5,000% in 2019, 1,000% in 2020 and 300% last year.
The government’s plan to list shares meshes with other more open policies implemented in recent years, such as allowing transactions in foreign currency and relaxing price controls. Still, the potential is limited by sanctions that will prevent US investors from participating in the market.
“The message from the government is that they are willing to allow support between the public and private sectors,” said Juan Domingo Cordero Osorio, president of the Rendivalores brokerage house. “What we are experiencing is irreversible.”
But for Pulido, the exchange chief, the planned share sale is an encouraging sign. He expects more equity issues to follow and believes it could help Venezuela shore up its economy.
“It’s a first step,” Pulido said. “The Government needs to provide legal certainty for this plan to be successful. The stock market offers both legal and operational security.”