Did Venezuela Really Compensate Cemex For Only Half of What it Wanted?

December 2, 2011

Headlines are beautiful things. Just witness yesterday’s “Venezuela to pay Cemex US$ 600 million for its assets in Venezuela”. It really sounds like Venezuela got the good end of the deal, as Cemex had sought US$ 1.2 billion in arbitration and supposedly ended up with only half of that. But did they?

Not really.

First of all, Venezuela had said that Cemex Venezuela was worth only US$ 450 million when it first nationalized it. On the other side, Cemex was asking for US$ 1.2 billion for it. What is not clear is whether Cemex was asking for US$ 1.2 billion for Cemex Venezuela or for its 75.7% stake in it. That alone makes a big difference.

But let’s look at the numbers and the announcements:

1) Venezuela will pay Cemex US$ 600 million, US$ 240 million in cash and US$ 360 million in PDVSA bonds in 4 parts, each one of them of US$ 90 million in the next four years. I am guessing this means that next year Cemex will get a 2013 PDVSA bond, the next a 2014 PDVSA on and so on and so forth.

2) However, Cemex owed Cemex Venezuela US$ 154 million ( I think it is US$ 158 million, but that is a minor difference). You see, after the Venezuelan Government announced that it would nationalize the cement sector, Cemex Venezuela sold its parent Cemex, its subsidiaries in Dominican Republic, Panama and Trinidad for US$ 355 million. Cemex paid US$ 132 million of that amount with dividends that were retained in Cemex Venezuela, US$ 60 million that were assets of Cemex Mexico in Venezuela and thus Cemex owed Cemex Venezuela US$ 158 million. As part of the settlement this debt with Cemex Venezuela is settled. Thus, Cemex Venezuela gets the US$ 600 million in cash and bonds AND gets US$ 154 (or 158 in my numbers) million that it no longer owes, thus Cemex is getting US$ 754 million

3) Cemex did not own 100% of Cemex Venezuela. The public owns 24.3% of it. Thus, the Venezuelan Government that said that Cemex Venezuela was only worth US$ 450 million, is saying that the company is worth US 996 million. Under Venezuelan law, the Government is obligated to buy out these minority shareholders ( I am one) at the same price (in local currency, of course, Venezuelans are second class citizens, more so if they are oligarchic investors). Whether the Government will follow the law or not, it says that the 24.3% not in the hands of Cemex is worth US$ 242 million.

So, Venezuela has to pay about a billion dollars for Cemex Venezuela, closer to the US$ 1.2 billion that Cemex wanted, whether it wanted it for its stake or for the whole thing, than the US$ 450 million the Government was offering.

That this is more of a victory for the Mexicans than for the Venezuelan Government is confirmed by the fact that Mexican President Felipe Calderon said he was coming to Chavez’ CELAC shindig, only hours before it began and right after the agreement with Cemex was signed.

Oh, the pretty revolution!

35 Responses to “Did Venezuela Really Compensate Cemex For Only Half of What it Wanted?”

  1. moctavio Says:

    I knew about this, thought it may not be too interesting for people, this is the story of this Government, look at Petrozuata, Cerro Negro, now Fertinitro and who knows what else, I will write today about a similar topic, how Chavez paid for some people for showing up at the Celac.

  2. Alexander Says:

    Octavio please play with this: (I copy bellow): SOrry I use this way, I did not find any email address your to send it.

    Chavez Windfall for Bond Investors Means 60% Returns After Nationalization

    By Daniel Cancel
    diciembre 06, 2011 12:00 AM EST

    Click ‘Queue’ to read later

    Venezuelan President Hugo Chavez, who says that capitalism is “ruining the world,” is handing bond investors a windfall by nationalizing a chemicals company.

    Dollar notes from FertiNitro, the joint venture operated by Koch Industries Inc. and state-run chemical company Pequiven, returned 60 percent since the nationalization in October 2010. Yields on the securities have dropped 6.29 percentage points to 8.35 percent since then as bondholders argued that the seizure triggered a clause requiring a payout above face value. The government offered on Nov. 22 to buy back the notes at 105 cents on the dollar, up from 68 cents the day before the takeover.

    Chavez, 57, has seized companies in the energy, food, metals, cement and banking industries as part of his plan to turn Venezuela into a socialist country. Gains on the FertiNitro securities dwarf the 17 percent return on Venezuelan government dollar bonds and a 1.3 percent gain for JPMorgan’s emerging- market corporate bond index in the period.

    “For all the noise associated with Chavez, he’s been very good to bondholders,” said Raymond Zucaro, who helps manage and advise on about $260 million of emerging-market corporate debt, including FertiNitro bonds, at SW Asset Management LLC in Newport Beach, California. “He’s never defaulted on any fixed- income obligations and frankly the yield doesn’t reflect that.”

    The 60 percent return for FertiNitro is based on a price of 99.625 cents on the dollar, which was the last trade reported on Nov. 4 by Trace, the bond price reporting system of the Financial Industry Regulatory Authority. If FertiNitro investors swap the 8.29 percent bonds in Pequiven’s tender offer today, the profit will be even greater as they will get 105 cents.

    ‘Double Your Money’

    Investors anticipated Venezuela would pay above face value because of past precedents with seized oil ventures, said Russell Dallen, head bond trader at Caracas Capital Markets.

    “Any time the market offers you the chance to essentially double your money in a year you have to jump at it,” Dallen said from Miami.

    Bonds of steelmaker Siderurgica del Turbio SA, known as Sidetur, may be the next opportunity for investors to bet on a tender offer ahead of maturity after the company’s assets were seized on Oct. 31, 2010, according to Dallen and fund managers at Knossos Asset Management in Caracas.

    “This is a good precedent for what we’re expecting with Sidetur,” said Francisco Ghersi, co-managing director of Knossos, which owns some of the bonds. “It’s worth waiting and taking the risk while earning spectacular yields along the way.”

    Amicable Settlement

    Pequiven said that 79 percent of bondholders have entered into a “lock-up agreement” to return the securities. While bondholders are set to be paid for the notes, Koch is seeking compensation for its seized assets in arbitration courts. Pequiven and Koch each held 35 percent stakes in the venture.

    Pequiven declined to comment further, Jose Valdivia, a partner at Hogan Lovells US LLP representing the company, said in an e-mail. Koch spokeswoman Melissa Cohlmia didn’t return an e-mail seeking comment and wasn’t available to speak by phone.

    The Venezuelan Information Ministry didn’t respond to an e- mail seeking comment.

    Zucaro, the FertiNitro bondholder, said that covenants in the indenture were triggered due to the nationalization and change of ownership of the company, which prompted the government to negotiate after being approached by investors.

    “They agreed to sit down and talk with us and we eventually reached an amicable settlement,” Zucaro said.

    The FertiNitro payout mirrors similar cases for bondholders of two joint ventures with Exxon Mobil Corp. and ConocoPhillips, known as Cerro Negro and Petrozuata.

    Bond Tender Offer

    State oil company Petroleos de Venezuela SA repurchased about $1.2 billion of bonds from investors in 2007 and 2008 after the U.S. oil companies refused to accept the terms of Chavez’s nationalization of the industry.

    Sidetur’s 10 percent bonds due in 2016, which Knossos’s Ghersi says are “very illiquid,” yield about 21.2 percent, according to Trace. The price surged in the days after its nationalization to 83 cents on the dollar on speculation that clauses in the notes could trigger a tender offer before maturity similar to the one for FertiNitro.

    Since then, the price on the $81.3 million in outstanding debt has fallen back to 68 cents on the dollar as bets for an immediate tender offer faded.

    Sidetur continues to be operated by its previous owners with government supervision as they negotiate a payment for the expropriated assets, which have a book value of 1.2 billion bolivars ($288 million), Oswaldo Sahmkow, finance director of Sivensa, Sidetur’s parent company, said in a phone interview.

    Appealing Expropriation

    Sidetur is appealing the expropriation decree, according to an earnings statement on its website. The steelmaker will buy back its debt once it receives compensation, Sahmkow said.

    “The contract obliges us to do so,” he said. “The owners of Sidetur will continue to collaborate with the bondholders.”

    Carmelo Haddad, who co-manages a $1.6 million fund with his partner Ghersi in Caracas at Knossos and holds Sidetur bonds, said that while the market isn’t betting on an immediate tender offer for Sidetur, negotiations may pick up following the FertiNitro deal.

    “If negotiations start again the securities could heat up,” Haddad said. “It’s such a small amount that the government isn’t interested in defaulting on the bonds.”

    To contact the reporter on this story: Daniel Cancel in Caracas at dcancel@bloomberg.net

    To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

  3. island canuck Says:

    In the last 3 years, according to the Central Bank of Venezuela, private investment has fallen 43%.

    I would believe that the number is low.

  4. JLB Says:

    I know it would be too much to ask but if there were anyone in the Chávez government with some creativity and vision, they could take the opportunity to score some political points with this deal in addition to saving funds they don’t reall have. This is how:
    – Offer either Holcim or Lafarge a 40% stake in Cemex Venezuela
    – Sell them 15.7 % of the government’s shares and make them buy the rest (24.7%) from the minority shareholders payable in US$ or Euros
    – Holcim or Lafarge end up owning a stake in the Venezuelan cement sector almost as large as the one they held prior to the expropriation and keep a foot in, and potential competitors out, in the future
    – The government doesn’t have to disburse any funds. It ends up with a 40% minority shareholder, as had originally proposed to Cemex, and has a valuable partner that can professionally manage the company.
    – The minority shareholders end up getting identical treatment to Cemex, as they can now realize the full value (US$ or Euros)

    Of course, the above assumes that either Lafarge or Holcim also have some vision.

  5. […] Did Venezuela Really Compensate Cemex For Only Half of What it Wanted? […]

  6. glenn Says:

    OT but O’Grady in the WSJ:
    “Among Mr. Chávez’s more amusing traits—providing you don’t live in Venezuela—is his unshakable belief that he can dictate what the Austrian classical-economist Ludwig Von Mises called “human action.” Thousands of years of experience suggest otherwise, most recently in the Soviet Union. But never mind. It is Venezuela’s destiny to suffer central-planning hubris all over

    Worth a read:http://online.wsj.com/article/SB10001424052970203833104577070773734191202.html

  7. Kepler Says:

    Saben? Me pregunto si el precio de la visita de Roussef fueron los veinte aviones.


  8. GeronL Says:

    Obviously the output of cement in Venezuela is going to take a dive. Everything that they nationalized has seen drops in output.

  9. Excellent analysis. 2 remarks:

    – How much of this deal went ‘under the table’? We’ll never know. But you can bet quite a few Mexicans, and many more Venezuelan Chavistas are extremely happy.

    – Now let’s all go to the Barrios, and explain these simple figures to our beloved pueblo, especially the chavista uneducated voters. Should be a piece of cake, they’ll understand immediately!?

    Education.. then again, not even some of that seems to work in Cuba after 5 decades..

  10. Kepler Says:

    Chávez is growing hair again. He may survive…hierba mala…

  11. moctavio Says:

    The 240 million dollar payment ahs to be made by dec. 7th, with a possible five day extension.

  12. Jan Says:

    Was a date given for the cash installment of the settlement? Cemex has been in the hot spot with the analysts regarding meeting or not their agreed covenants with banks by year end.

  13. vendor Says:

    And the new Cemex can’t pay its bills or keep its plant in top running condition.

  14. Ira Says:

    Miguel–I love you to death, but I think that your focus is tragically misplaced.

    No one really gives a crap about the financial irregularities taking place in VZ. These irregularities a GIVEN, and none of them will make a rat’s ass difference in the upcoming elections. The people have been dumbified not to give a shit.

    The big story of the day is CELDEC, or whatever the correct acronym is for today’s meeting in Caracas of all of these countries–except the U.S. and Canada which weren’t invited…and which is supposed to “replace” the OAS.

    Most important:

    If you pay attention to how Chavez’s big mouth seems to be incredibly stifled these past few months, TOTALLY out of character for him, the conclusions are clear, and I know you agree with me on this:

    Chavez is dying.

    THAT’S the big story here!

    • moctavio Says:

      This is not a financial irregularity, this is Venezuelan’s getting screwed and Chavez saying he is winning.

      I fully agree with you, taking bets on his demise before my April birthday in 2012.

    • deananash Says:

      Ira, I always felt likewise, that the corruption was never going to be Chavez’s Achilles’ heel. Then Miguel explained to me that another of his purposes is to document what’s going on so that, one day, justice may be served.

      Removing Venezuela from Chavez’s clutches will take more than documented corruption. The ultimate solution is probably going to be the best one, and who knows, maybe we’ll all receive our Christmas wishes.

  15. Dr. Faustus Says:

    Was there not a Swiss cement maker who was also nationalized? Did they not also file with the IDSID people in Washington D.C.? I rather doubt that they, or the other 20+ companies who have filed at the World Bank, will ever see a penny of their money. To the warped mind of one ‘Hugo Chavez’: Spanish-speaking Latin American countries – good…English-speaking North Americans and Europeans (Spain included) – bad. The insanity continues….

  16. sapitosetty Says:

    how about the Cemex stock price movement in the 3 days before the deal was announced? gotta love any large cap stock that rises 33% in less than a week. i just wish i had the inside knowledge that some others may have had. do you think there was an information leak? if so, do you think it came from mexico or venezuela?

    • moctavio Says:

      Jeez, if 240 million in cash moves the price of CX 33%, that company is in deeper problem than I thought. They have 15 billion in loans/bonds that comes due in 2014.

      My guess is from Venezuela, inside info is a national sport.

  17. Charly Says:

    This announcement one or two days before the current party in Fuerte Tiuna takes place. Could it be possible that Calderon twisted Chavez’s arm to come to “la cumbre”? Anything is possible in the surrealist latino political panorama.

  18. plob500 Says:

    Thanks for that very clear analysis of the deal.

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