Venezuelan Daily Brief

Published in association with The DVA Group and The Selinger Group, the Venezuelan Daily Brief provides bi-weekly summaries of key news items affecting bulk commodities and the general business environment in Venezuela.

Friday, July 1, 2011

July 1st, 2011

Economics & Finance

Venezuela's 2027 US-dollar bond rally on speculation over Chávez's health
Venezuela's benchmark 2027 US-dollar bond rose 3.5% in early trading on Friday, its highest level since May 2010, on market's speculation over a change of leadership in Venezuela. "Fears over the health of President Chávez could be interpreted a number of ways, but from a market perspective risk premiums should decline," said Richard Segal, an emerging markets analyst at Jefferies in London. Venezuela's benchmark dollar bonds due in 2027 rose to 78.00 at 11:44 GMT, according to Reuters, giving a yield of 12.4%. (El Universal, 01-07-2011;

Venezuela owes multinationals U$D 5 billion; approves U$D 100 million in delayed dividends 
Venezuela has approved U$D 100 million in delayed dividend requests as part of a process to review the hard currency needs of foreign companies working in the South American country. More than 30 companies including subsidiaries of U.S. companies Kimberly-Clark Corp (KMB.N) and H.J. Heinz Co (HNZ.N), as well as Japan's Seiko Epson (6724.T), will receive the funds in the first phase of an ongoing process. Vice President Elias Jaua said the new strategy set by his boss Hugo Chavez, who is recuperating from surgery in Cuba, "implied an exhaustive revision" of the system. A source close to the Planning and Finance Ministry confirmed that the Government owes multinational companies operating in Venezuela closet o U$D 5 billion in dividends and capital repatriation. The Currency Board had admitted it had U$D 2 billion pending. (Reuters, 06-30-2011;; plus El Nacional;

Government-multinational joint ventures seen as unrealistic
A senior multinational company executive says a proposal by VP Elías Jaua for joint ventures between the Government and major multinational companies operating in Venezuela:"Would never be viable". Jaua made the proposal by asking foreign companies to reinvest dividends from local operations in joint ventures with the Venezuelan Government. More information in Spanish. (El Universal, 07-01-2011;

Venezuela has seized more companies in 2011 than in 2010
The pace of expropriations has not slowed down in Venezuela. The government has seized 384 companies so far this year, according to the Venezuelan Confederation of Industries (CONINDUSTRIA).  "This is a matter of concern. The Venezuelan government has plundered or seized so far this year 384 private companies, which is higher than all the expropriations carried out throughout 2010," said Carlos Larrazábal, the president of CONINDUSTRIA. He added that these estimates do not include the farms seized under the so-called recovery of lands". (El Universal, 06-29-2011;


Venezuela oil sector gets U$D 1.5 billion loan from Japan
Japan will loan Venezuela U$D1.5 billion to help fund expansion of two large oil refineries, the South American OPEC member announced on Tuesday. Energy Minister Rafael Ramirez said Venezuela would repay the loan over 15 years in cash or oil at a rate of Libor plus 3.8 points. "Japan is helping us very much in the transfer of technology and we are helping Japan diversify its sources of energy." (Reuters, 06-28-2011;

Financial markets await PDVSA results for 2010
Traders claim that state-run oil company Petróleos de Venezuela (PDVSA) plans to issue USD 3 billion-USD 4.5 billion in bonds. The first half of the year ends on Thursday but state-run oil company Petróleos de Venezuela (PDVSA) has not yet officially released its results and financial and operational report for 2010. According to company bylaws, the regular meeting must be held "twice a year in the headquarters of the company, one within 90 days following the end of each financial year and another one within the last quarter of each year." (El Universal, 06-30-2011;

Venezuelan oil giant expects production of new gas in '12
State-owned oil giant Petróleos de Venezuela, or PDVSA, expects to begin gas production from a platform in the Urdaneta Project, which it is developing with Italy's ENI and Spain's Repsol YPF, in 2012, the company's chief, Rafael Ramirez, said.”We are working in an accelerated manner to hire an offshore platform and start gas production early on the Rafael Urdaneta Project," The well is part of the largest gas field found in Venezuela, which is the world's No. 5 exporter of crude and ranks No. 8 in terms of gas reserves, with 176 trillion cubic feet. (Fox News Latino, 06-29-2011;

Food supply remains faulty
The inability of companies pay for imported raw materials because of prices regulated below market conditions causes a permanent deficit in supplies. A ton of crude corn was quoted at U$D 680 abroad in January 2009. In January 2010 it stood at U$D 970 and earlier this year it went for U$D 1,340. It is currently trading at U$D 1,675. As food imports are handled at the official U$D 4.30 exchange rate, and a liter of corn oil is regulated at 7.80 bolivars since April, the industry sees U$D 1,813 for each ton imported, not counting operating expenses, transportation, refining, packaging and marketing. More information in Spanish. (Tal Cual, 07-01-2011;

Population blames the government for shortages
A survey by the Venezuelan Institute for Data Analysis (IVAD), over one third of the Venezuelan population blamed the national government directly foodstuff shortages. In the poll, conducted between 16 and 21 June this year, indicates that 12.4% of respondents believe that business is responsible for this situation, and 11.1% believe that President Hugo Chavez has responsibility for food shortages. More information in Spanish. (El Universal, 06-30-2011;

Cadivi says it has authorized over U$D 12,500 million for imports
The Currency Administration Commission (CADIVI) has authorized over U$D 12.5 billion to pay for imports, according to the commission president, Manuel Barroso. He said that this part of a total U$D 15 billion, so far authorized by the Central Bank of Venezuela. More information in Spanish. (AVN, 06-30-2011;

National industry exports down to 5% of total
The president of the Venezuelan Confederation of Industries (Conindustria), Carlos Larrazabal, said the greatest failure of public policy for the industry lies in the loss of competitiveness of local products and the drastic decline of the industry as supplier of inputs for export. "Whereas in 1999 we were 20% of total exports, we now contribute barely 5%," More information in Spanish. (El Mundo, 06-30-2011;


Chávez says a cancerous tumor was removed
President Hugo Chávez stunned this nation on Thursday night in an unusually concise 15-minute address on state television in which he acknowledged that he has been battling cancer. Mr. Chávez made the revelation from Cuba, where he has been in seclusion at a medical facility for the last three weeks. Mr. Chávez, who appeared to have lost weight, said he had undergone a second operation to remove a cancerous tumor. He said he was receiving further treatment in Cuba, and that he would “continue battling.” He provided few other details, including what type of cancer was detected or where the tumor was located. Mr. Chávez’s acknowledgement raised new doubts in Venezuela. His political opponents have already contended that it was unconstitutional for him to continue governing from abroad. Mr. Chávez did not say when he might return home. (The New York Times, 07-01-2011;

Chavez's health and implications for Chinese investment
The absence of Venezuelan President Hugo Chavez due to health reasons has caused uncertainty about Venezuela’s future, and this is cause for concern in China. China has made significant financial investments in and commitments to Venezuela, from which Venezuela has benefited greatly. China risks losing billions of dollars if Venezuela destabilizes, and in the long term, it fears losing the standing preferential relationship with Caracas if the government changes and Venezuela begins to look elsewhere for technical expertise to accompany investment. (Investors Insight, 06-29-2011;

Presidential illness opens official leadership debate
"The possibility of more serious health problems has sparked debate about possible successors, if Hugo Chavez can’t run for the presidential election," notes a report by Barclays Capital. The document notes that "the strong personal leadership style of President Chavez has blocked the emergence of a clear alternative to his party. The other leaders, including Minister of Interior and Justice Tarek El Aissami, Minister of Foreign Affairs, Nicolás Maduro, Vice President Elias Jaua and Deputy to the National Assembly Diosdado Cabello, are much less popular than the main opposition leaders." More information in Spanish. (El Universal, 07-01-2011;

Without Chavez, Venezuelans may have a future
According to FOX news the struggle for the future of Venezuela after Hugo Chávez may already have begun. But, millions of Venezuelans have been holding their next breath wondering whether Chávez is drawing his last. Silent video and still photos released from Cuba late Tuesday are not terribly convincing. Whatever happens to the ailing leader, the fact remains that Chávez’s regime has outlived its viability, and no Venezuelan should waste a moment pretending that they will mourn its passing. (Fox News, 06-29-2011;

The following brief is a synthesis of the news as reported by a variety of media sources. As such, the views and opinions expressed do not necessarily reflect those of Duarte Vivas & Asociados and The Selinger Group.

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