Venezuela plans stock sale breaking with socialist model

Caracas, Venezuela

The Venezuelan government is seeking private investors to inject funds into vital but crippled state-owned companies, decades after seizing them in the name of socialism.

The government intends to offer 5% to 10% stakes in companies ranging from telephone and internet service providers to a petrochemical producer on Monday. In another country, these industries could be attractive targets for investors, but questions remain about who would be willing or able to take a minority position in Venezuelan companies that have suffered from years of neglect and mismanagement.

Adding to the mystery is the government’s lack of details about the sale, including the price it is looking for the companies’ shares and what stock market they might be listed on. Some believe the move could be a first step towards getting businesses back into private hands.

“We need capital for the development of all public enterprises,” Maduro said during a televised event on Wednesday. “We need technology. We need new markets and we will move forward.

It’s a marked change from Maduro’s predecessor, the late President Hugo Chávez, who nationalized many businesses in his bid to turn the South American country into a socialist state. Among the companies Maduro mentioned are CANTV and its affiliate Movilnet, petrochemical producer Petroquimica de Venezuela and a mining-focused conglomerate.

Interest, however, may be limited to investors with government ties or those with a risk appetite.

The country is still under economic sanctions imposed by the United States and other countries that prevent investors from funneling money to state-owned Venezuelan companies. And the percentages announced by Maduro would not give private investors the decision-making power to undertake much-needed changes within companies.

At the turn of the century, Chávez made a series of takeovers in the electricity, telecommunications, natural gas and oil sectors. But the government made minimal investments in some of these companies, which left them to provide substandard services.

Power outages lasting several days are common across the country. Millions of households have no access to water or the service is intermittent. Internet and telephone services are poor.

Supporters and opponents of the government complain of poor basic services across the country, even though elections are not near. But economists point out that the Venezuelan government needs to improve some of these services even if it is slightly ahead of the 2024 presidential election.

“We are undoubtedly witnessing a paradigm shift largely forced by circumstances but also largely fueled by political survival,” said Luis Prato, senior economist at firm Torino Capital. “Since June 2014, with this significant drop in oil prices, the Maduro administration has started to see a decline in oil revenues. Then we went through a period of 2014 to 2019 of price control, of a more intermediate state.

But as the state lost the ability to generate wealth and growth, Prato said, “it began to make room for private sector involvement.”

Venezuela is still going through a protracted social, economic and humanitarian crisis, attributed to falling oil prices, economic sanctions and two decades of mismanagement by socialist governments. But the government has taken steps to ease some of the economic pressures, including ditching its long and complicated efforts to restrict US dollar transactions in favor of the local bolivar, the value of which has been wiped out by inflation.

Some CANTV shares have long been traded on the Caracas Stock Exchange, the oldest stock exchange in the country. Maduro in this week’s announcement said state-owned companies would be listed on “various stock exchanges” across the country without specifying.

But Friday, Gustavo Pulido, president of the Caracas Stock Exchange, had not received any information on the planned share sales. He said the process of registering other companies and eventually listing them is long and requires the disclosure of financial documents.

“It takes as long as you want to get the placement right. I couldn’t tell you a certain time,” Pulido said, adding that an offer on the Caracas Stock Exchange could not be structured by Monday.

The government established its own exchange in 2010. A government spokesperson did not respond to a request for comment from The Associated Press about which exchanges it intends to use.

Prato said the government would likely use its own exchange or a separate digital system for now, but that would have limited results.

Henkel Garcia, director of the Caracas-based company Econometrica, said the companies needed major investment to improve the quality of their services, which were much better before they were nationalised. But he warned that the country lacked a mechanism to oversee companies’ accounting and financial reporting procedures, making it impossible to ensure that private investment in state-owned enterprises would be spent appropriately.

This missing component, he said, creates a scenario similar to post-Soviet reforms in which a large number of state-owned enterprises were privatized.

“If this is really the start of the total sale or total divestiture of these companies, which for me is a likely scenario, one would have to ask who they would be divested to because we have episodes like Russia, in these companies that used to be state-owned have ended up in the hands of people close to the government,” Henkel said. “So this is a complex phenomenon that you could say opens the door to something positive, but with the institutional weakness we have and with the lack of credible referees, well, it might not end in the best way.”