Maduro announced the government will offer up to 10% of CANTV and other state-owned companies in the stock market. Before you start to celebrate the Venezuelan perestroika, let’s consider what’s really at stake.
By Caracas Chronicles – Luis González Morales
May 18, 2022
“We’re going to offer out 5% to 10% of a few public companies’ stock to national investment.”
With these words, on Wednesday, May 12th, Maduro announced that Venezuela’s own perestroika was well and truly underway (or appears to be, anyway). Maduro, a champion of Hugo Chávez’s “21st Century Socialism” for a long time, was committing to a policy that finds itself at odds with what la Revolución has preached since coming to power in 1998.
In short, the government would be offering shares of state-owned companies in the stock market, allowing anyone to become a shareholder of companies like CANTV, Movilnet, and even, according to Maduro, companies in the oil & gas industry (which we don’t now if he refers to JVs, PDVSA, or what). For now, let’s focus on what this means for the government, what they stand to gain, who could possibly want shares in crumbling companies, and what may end up happening.
Why now?
Venezuela’s economic collapse, coupled with U.S.-imposed financial sanctions, has made it harder (but not impossible) for the regime to sustain itself. The discourse around sanctions is complicated, and will probably get more toxic, but the fact of the matter remains: the Maduro government has been forced to tighten its belt. As such, they’ve been looking for alternative financing. Seeking to inject cash into struggling state-owned companies through the stock market is one such way.
However, there’s more to it than a simple financial decision.
The Maduro government finds itself at an interesting crossroads. They need to appear democratic in an attempt to get the U.S. and the European Union to believe their hardline approach is failing and therefore to consider easing sanctions. But chavismo can’t be democratic, because if they open up too much they could lose power.
The recent 2021 regional elections are an example. While the government’s party colored the electoral map bright red, they had their worst electoral result in terms of turnout, ever. The party failed to reach even 4 million votes in favor, and even had more votes against.
Still, they know actions speak louder than words, and we’ve seen actions. Whether it’s the removal of barriers to dollarization (some regressive taxes notwithstanding) or the lack of heavy-handed regulation on new industries like online platforms and delivery services, the government is trying to sell itself as a new product. But old habits die hard.
So, how could this benefit them, and who would dare touch state companies? Let’s look at three scenarios.
Alcabala
The web of sanctions can have very interesting, counterproductive, consequences. For example, those targeted by sanctions may dig their boots in the ground and decide to see it out, rather than refrain from assisting Maduro’s government. This contributes to the growth of the ever-more-powerful Venezuelan oligarchy, which owes everything they have to the regime. Likewise, foreign investors may be afraid of getting anywhere near state-owned assets, for fear that they’ll fall foul of existing sanctions.
The end result is only those with nothing to fear will buy up the shares offered, knowing full well that if sanctions are ever removed they stand to gain tremendously, given that the main barrier for foreign investors would be gone, increasing demand for the asset they control. Or, even more interesting for the regime, these stocks can be used as a ticket to play. You want to be in the King’s good grace? Get some Movilnet and mix it with a bit of Guayana’s basic industries. Sprinkle it with Pequiven.
Even if sanctions remain, the oligarchs know they’d still be in a good position. First, they’d have gained favor with Maduro, who will be grateful his allies came to his aid when he needed it. Second, if the government finds itself in the need of buying back shares, they’ll do so at a premium, resulting in a good windfall for those who got in the earliest – likely people already closest to the regime.
In other words, this could become a sort of tax for those engaged (or looking to be engaged) with the regime, and any benefit, if there’s any to be had, is likely to be held among the new class of boliburgueses.
Hell, those who were still holding the few CANTV shares that remained in the hands of private investors when the company went public in 2007 have already seen a real benefit: CANTV’s stock closed out the day on Friday with an increase in price of 38.56% thanks to the recent news.
Shady Deals
One would expect greater transparency from companies on the stock market due to the legally mandated requirements laid out in the laws and regulations overseen by the SUNAVAL, the stock-market watchdog, a rough equivalent to the U.S. Securities Exchange Commission. Therefore, some may be optimistic that the government will need to show greater transparency in the business carried out by the companies offering shares publicly. However, this government is rather famous for shady business dealings behind closed doors.
The Caracas Stock Exchange (BVC) was rather positive after Maduro’s words on television, even issuing this public statement, with its president Gustavo Pulido adding to the sentiment in an interview for Tal Cual. In the interview, Pulido hypes up CANTV’s “transparency” and tells the news outlet that he wrote the company after a jump in their share price asking if they were doing anything that could’ve led to the increase. Of course, CANTV got back to him saying that they’d done nothing, and that the price increase was probably due to Maduro’s announcement. This is basic stuff, but needs to be praised by Pulido given that the BVC stands to make a profit if the government chooses them to host the offering.
That’s right, we still have no idea where shares will be offered. It could be the BVC which might result in some level of transparency, but the government could also end up doing it through their own stock exchange, the Bolsa Pública de Valores Bicentenaria (BPVB).
The 2011 institution originally promised to “democratize” investing by lending a hand to small investors. Alas, the exchange ended up being a home for the trading of PDVSA’s debt instruments. As a government entity, one can see how it could end up scaring off investors, as well as being the perfect place for corruption behind the impenetrable curtain of the regime’s Kafkaesque red tape and Orwellian secrecy.
Pulido had some words of criticism for the BPVB’s online system, which he argues wouldn’t be able to handle the online traffic produced by a public offering of companies like PDVSA or SIDOR. But of course he’d say that.
International Takeovers
Among those who aren’t too worried about U.S. sanctions we find some of Venezuela’s biggest allies, countries like Russia, Iran, and China. The former two are obviously well versed in American financial retaliation, with the latter being famous for dodging consequences. All of them, China in particular, are knowledgeable in leveraging investments into political power.
In June 2019, Senegal announced the building of a new data center just outside of Dakar. The data center was marketed as a victory for the strengthening of the country’s “digital sovereignty,” which is odd considering that it was built using funds loaned by the Export-Import Bank of China, and with equipment and support provided by Huawei.
Similarly, Huawei provided $75 million to build a data center in Zambia in 2017, reportedly using a “soft loan” strategy whereby loans are offered on substantially better terms than other competitors in an attempt to secure contracts. The plan isn’t to make money quickly, it’s to bank up political power that can later be exerted over the investment target. Their strategy was used in Nepal in 2016, when the nation traded its dependence on India for dependence on China, with Cuba, Cameroon, and Kenya being other targets.
China’s telecom investment strategy is so famous it’s the plot for the 2017 propaganda film “China Salesman” (staring Myke Tyson and Steven Seagal, of all people) where a Chinese businessman risks his life to win his company a contract for telecom investments in an African nation, beating an evil French company that’s just trying to control the African country’s mineral resources. Truly moving stuff.
Now, 5% to 10% of CANTV, Movilnet or PDVSA could be good appetizers for China, maybe this initial offering is just a trial run, the first stage of something bigger. There’s a whole lot of laws (and even the Constitution) standing in the way of the government just deciding to sell 100% of PDVSA or allowing international competition. Some orthodox chavista lawmakers in the National Assembly (AN) are wary of economic reform. But laws are just ink on paper, they can be easily relaxed by those with no respect for what they stand for, and with a blank check like the “Anti Blockade Law,” which is alive and well after being transferred from the National Constituent Assembly to Maduro’s AN, we may yet see some radical moves in the not-so-distant future. For now, let’s keep an eye on those who stand to profit, and keep our skepticism high.
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