AP News, January 10th, 2007
A key Venezuelan lawmaker said Wednesday that President Hugo Chavez's government will compensate companies it nationalizes _ a sign that could help calm investors alarmed over the plan, which sent Venezuelan stocks tumbling.
"We're not going to do anything illegal. We will negotiate," Ricardo Sanguino, head of the congressional finance commission, told reporters.
"There will always be compensation," Sanguino added.
Chavez announced plans this week to take over the country's largest telecommunication and electrical companies, prompting investors to sell off holdings in CA Nacional Telefonos de Venezuela _ known as CANTV, which is partially owned by U.S.-based Verizon Communications Inc. _ and Electricidad de Caracas, controlled by Arlington, Virginia-based AES Corp.
Critics of Chavez's drive to transform Venezuela into a socialist state were concerned that the nationalization announcement _ coming at the start of a fresh six-year term _ marked a radical twist akin to steps taken decades ago by Cuban leader Fidel Castro.
Yet nationalization may not be a bad deal for some. Chavez's government, flush with oil revenues, has paid well for ranchlands and buildings it has expropriated in recent years under measures targeting "idle" properties.
Venezuelan shares recovered some ground Wednesday as investors snapped up cheap buys, heartened by indications that the government would negotiate compensation.
The Caracas Stock Exchange's IBC index, after losing nearly 19 percent Tuesday, closed up 5.8 percent Wednesday. CANTV's American depositary shares rose $1.80, or 14.8 percent, to close at $14 on the New York Stock Exchange.
"Multinationals do not always suffer during nationalizations," Walter Molano, analyst for Connecticut-based BCP securities, said in an investment note Wednesday. He noted that takeovers are often used as an excuse to default on local obligations, while company managers can extract huge fees to help operate the nationalized facilities, which governments often lack the capacity to run.
Chavez, a fierce critic of capitalism, accused the financial markets on Wednesday of "playing with alarmism, as always."
"The Caracas stock exchange may fall, (but) what won't fall is the Venezuelan economy, which is thriving more than ever," Chavez said as he was sworn in to a new term ending 2013.
Chavez has many reasons not to want to alienate investors.
His country has billions of dollars of government debt on its books from bond bailouts of friendly allies and has also repeatedly issued bonds of its own on the market.
Venezuela has also courted investment from foreign companies, especially those from politically allied nations, in its oil and natural gas.
"The Chavez administration has been an active market player, both as a borrower from the market and as a lender to regional countries, and it is unlikely to want to erode these abilities by advancing market-unfriendly initiatives," UBS Investment Research analyst Javier Kulesz said in a client note Wednesday.
While Chavez's nationalization plan is likely to face few hurdles in Venezuela, where his allies control congress and the courts, mishandling negotiations with CANTV _ the country's largest publicly traded company and the only Venezuelan listing on the New York Stock Exchange _ could open his government to costly litigation in the United States.
Chavez has not specified which other companies will be taken over, only saying that those companies which were privatized would be nationalized.
It is not clear if that includes the AES-owned Electricidad de Caracas, which has always been private.
But Sanguino told The Associated Press that the measures may extend to other sectors essential to the "security of the state," citing steel production as an example.
Chavez has also said he plans to bring state control over lucrative oil projects run by foreign companies in the Orinoco River basin and to pass a constitutional amendment to eliminate the Central Bank's autonomy.
On Wednesday, Chavez said the constitution should also be changed to ensure government control of the natural gas industry. Venezuela law currently permits foreign companies to hold majority stakes in natural gas projects.
Sanguino said that the shareholder rights of any company affected would be respected.
Chavez has long warned of the state taking control of CANTV and the Orinoco oil projects and has freely siphoned central bank reserves to state social programs and taken other steps to erode the bank's autonomy.
"He has been consistent with his vision of how the country should function. This should not come as a surprise," said Emilio Medina-Smith, an economist at Venezuela's University of Carabobo.
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Associated Press Writers Fabiola Sanchez and Jorge Rueda contributed to this report.
