Maduro embraces the stock market in Venezuela’s latest nod to normality

(Bloomberg) – Venezuela’s stock market was derided by the late President Hugo Chavez as a tool of the rich, battered by years of recession and shunned by international investors as the national currency became nearly worthless.

But in his bid to revive the economy, Chavez’s hand-picked successor is making amends with one of the institutions most bruised by years of socialist policies. In an about-face, President Nicolas Maduro plans to sell slices of the government’s stakes in state-owned companies through the stock exchange.

“The government has taken a 180 degree turn,” said Gustavo Pulido, the director of the Caracas Stock Exchange.

The move, while modest in scope, is dripping with symbolism and part of Maduro’s drive to reinvigorate the deeply damaged economy by allowing more free-market businesses. He has already made progress in strengthening the bolivar and spurring modest growth in a country that has seen poverty and hunger soar under decades of socialist policies.

In the coming weeks, the government will offer a 5% stake in lender Banco de Venezuela and landline and internet service provider Cantv. More such listings could follow as the government seeks to raise funds.

The most attractive target could be companies related to oil, gas and petrochemicals which Maduro says could follow suit. Offering shares would be a game-changer for Venezuela’s most important industry, allowing companies more independence as government involvement declines, according to Tamara Herrera, an economist and director of Venezuelan research group Sintesis Financiera.

Venezuela’s hydrocarbon law stipulates that energy companies must be majority state-owned, so this would need to be changed to have the government sell the majority stakes. It is unclear whether Maduro’s administration would allow this, given that he and his allies often talk about how Venezuela’s natural resources belong to its citizens.

The sale of Banco de Venezuela should come first. The lender’s most recent financial statements show earnings jumped 70% in dollar terms in the first half from a year earlier. The latest data showed it had 15 million customers and a 26% market share.

Cantv is more of a question mark. It has recently selected brokerages to act as structuring agent and bookrunner, but the most recent financial statements are from the end of 2020, when it returned to a profit after losses in 2019. service has suffered amid years of divestment and infrastructure theft, while its fees remain heavily subsidized.

Both companies have moved back and forth between state control and the hands of private investors. Cantv was first acquired by the Venezuelan state in the 1950s, then privatized in the 1990s. Chavez took it over in 2007. Banco de Venezuela was acquired by Spain’s Grupo Santander in the 1990s Then Chavez nationalized it in 2009.

Cantv and Banco de Venezuela each have a small number of shares already traded, and the price rose after the government announced plans to sell a stake 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 behind the asset sales have not publicly stated the rationale for the plan, but Maduro said capital was needed to expand state-owned companies and acquire new technologies.

Initial equity sales are expected to see limited interest as they will be denominated in bolivars 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 advise anyone considering an investment. The government says the price will be determined by the market.

In recent years, the stock market has mostly served Venezuelans with money trapped in the country. You buy stocks to try to offset the impact of inflation and the fall in the value of the bolivar, which has lost 99% over the past three years. The market served as a hedge, with the benchmark up in nominal terms by 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 is part of other more open policies it has implemented in recent years, such as allowing foreign currency trading and easing price controls. Yet the potential is limited by the sanctions that will prevent US investors from participating in the market.

“The government’s message is that it is ready to allow support between the private and public sectors,” said Juan Domingo Cordero Osorio, president of the brokerage Rendivalores. “What we are going through is irreversible.”

Venezuela’s economy is still struggling, with its gross domestic product now a third of what it was when Maduro took office nine years ago. Parts of Caracas still feel drained by the massive emigration seen in recent years as workers sought better opportunities in Colombia, Spain or the United States.

But for Pulido, the boss of the Stock Exchange, the planned sale of shares is an encouraging sign. He expects more equity issuance to follow and believes this could help Venezuela shore up its economy.

“It’s a first step,” Pulido said. “The government must provide legal certainty for this plan to succeed. The exchange offers both legal and operational security.

©2022 Bloomberg LP

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