Venezuela plans sale of shares in rupture with the socialist model

CARACAS, Venezuela (AP) — The Venezuelan government is seeking private investors to pump funds into vital but crippled state-owned companies, decades after seizing them in the name of socialism.

On Monday, the government intends to offer 5% to 10% stakes in companies ranging from phone and internet service providers to a petrochemical producer. In another country, those 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 years of neglect and mismanagement.

Adding to the mystery is the lack of details provided by the government about the sale, including what price it is seeking for the companies’ shares and what stock market they might be listed on. Some speculate that the move could be a first step toward returning the companies to private hands.

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

It is a marked departure from Maduro’s predecessor, the late President Hugo Chavez, who nationalized many companies in his bid to transform the South American country into a socialist state. Among the companies Maduro mentioned are CANTV and its subsidiary Movilnet, the petrochemical producer Petrochemicals of Venezuela, and a conglomerate focused on the mining sector.

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

The country is still under economic sanctions imposed by the US and other countries that prevent investors from channeling money to Venezuela’s state-owned companies. And the percentages announced by Maduro would not give private investors decision-making powers to undertake much-needed changes within corporations.

At the turn of the century, Chávez carried out a series of takeovers in the electricity, telecommunications, natural gas, and oil sectors. But the government has made minimal investments in some of these companies, which has left them providing poor service.

Multi-day power outages are common throughout the country. Millions of households do not have access to water or the service is intermittent. Internet and telephone services are poor.

Both supporters and opponents of the government complain of poor basic services throughout the country, even if elections are not near. But economists say Venezuela’s government needs to improve some of those services even if it’s a bit ahead of the 2024 presidential election.

“We are certainly seeing a paradigm shift that is largely forced by circumstances but also driven largely by political survival,” Luis Prato, senior economist at firm Torino Capital. “Since June 2014, with this significant drop in oil prices, the Maduro administration began to see a drop in oil revenues. Then, we went through a period from 2014 to 2019 of price control, of a more intervening state”.

But as the state lost the ability to generate wealth and growth, Prato said, “it began to open up space for private sector participation.”

Venezuela is still under a protracted social, economic, and humanitarian crisis that is blamed on 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 pressure, including giving up its long and complicated efforts to restrict transactions in US dollars in favor of the local bolívar, whose value has been erased by inflation.

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

But as of Friday, Gustavo Pulido, president of the Caracas Stock Exchange, had not received any information about the planned share sales. He said the process to register the other companies and eventually list them is lengthy and requires the disclosure of financial documents.

“It takes as long as you want for the placement to be successful. I wouldn’t know how to tell you a specific time,” Pulido said, adding that an offer could not be structured on the Caracas Stock Exchange for Monday.

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

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

Henkel Garcia, director of the Caracas-based firm Econometrica, said the companies need significant investment to improve the quality of their services, which were much better before they were nationalized. But he cautioned that the country lacks a mechanism to oversee companies’ financial reporting and accounting procedures, making it impossible to guarantee that private investment in state-owned companies will be spent properly.

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

“If this really is the beginning of the total sale or the total handover of these companies, which for me is a probable scenario, one would have to ask who they would be handed over to because we have episodes like the Russian one, in which these companies that once belonged to the state ended up in the hands of people close to the government,” Henkel said. “So, it is a complex phenomenon that you could say opens the door to something positive, but with the institutional weakness that we have and with the lack of credible referees, well, it may not end in the best way.”

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