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.

Tuesday, August 23, 2011

August 23th, 2011

Economics & Finance

Venezuela’s debt rating cut by S&P on “arbitrary laws”, Chavez's health
Venezuela had its credit ratings cut for the first time since 2006 by Standard & Poor’s, which cited concern over the country’s “changing and arbitrary laws” as well as the health of President Hugo Chavez. The downgrade comes after Chavez ordered the central bank to repatriate as much as $11 billion of gold reserves as he battles with an undisclosed type of cancer. Venezuela’s international reserves held abroad were “a strength of the rating, and with this movement that situation is going to change, which adds extra uncertainty.” Venezuela joins Bolivia, Paraguay and Suriname as Latin American nations with the B+ rating. Moody’s assigns Venezuela a B2 grade, while Fitch also gives Venezuela a B+. (Bloomberg, 08-19-2011;

V-bonds fell less than expected
The behavior of the Venezuelan bonds in international markets yesterday was relatively stable, averaging a drop of 0.5%. It was expected that lowering the credit rating by Standard & Poor's would greatly affect the price of debt on the first day of operations, but Venezuelan papers remained a relatively good choice. A source said this was due to the fact that Standard & Poor's was the last to lower the rating of the country. Fitch and Moody's had punished the risk rating in Venezuela a few weeks ago, ranking it even lower than Standard. More in Spanish: (El Nacional, 08-23-2011;

Local stock market up 51.43%
Venezuela's stock market dropped slightly this week, with the index dropping 0.62% to 98,094 from last week's 99,558 close. Volume picked up, but mostly with a large cross trade in MANTEX shares, which accounted for over 900,000 shares traded. (Latin American Herald Tribune, 08-22-2011;

Central Bank requests gold holdings held by BOE, Merentes says gold is over 60% of total reserves
Venezuela’s central bank has requested its 99 tons of gold holdings from the Bank of England, according to a bank statement sent by e-mail, citing the institution’s president Nelson Merentes. “We’ve contacted the Bank of England and the corresponding protocols have been initiated to complete this operation as soon as possible,” Merentes said, according to the statement. “Once that’s done, the shipments will begin by sea.” He also said Venezuela’s gold is a little over 60% of total international reserves, some U$D 18 billion. (Bloomberg, 08-21-2011;; and more in Spanish: (Agencia Venezolana de Noticias;

Swap of US dollars for yuans or rubles ruled out
Venezuelan reserves will be moved, but kept in US dollars according to Central Bank President Nelson Merentes. Venezuela will move its operating international reserves from Swiss, British, French, and American banks to financial institutions in Russia, China, or Brazil, but that does not mean that US dollars would be swapped for Chinese yuan, Russian ruble, or Brazilian real. He justified the decision to move reserve funds by saying that "we are protecting our funds, in a first phase. If there is a region affected by an economic disturbance, the most prudent and advisable decision is to change the location of these reserves (...) We are protecting ourselves from the risk of contagion. We seek better safeguard (for the funds)." (El Universal, 08-22-2011;

Merentes: "It is not true that China asked to extend credit guarantees"
The president of the Central Bank of Venezuela, Nelson Merentes, says it is false that China has asked for guarantees to back credits. He says they will diversify their portfolio and only a small amount will be placed in China in order to anticipate markets. “China is virtually the second world power in production. Our studies say the yuan will become convertible very soon and those who get ahead will come out favorably”.  More in Spanish at (El Nacional, 08-22-2011;

Chavez’s gold grab prompts dash for physical, Citigroup expects increase to $ 2,000 gold per ounce
The gold price reached a new nominal high of $1,913.50 in Asian trading today, while silver, platinum and palladium all also recording gains. Gold has been propelled sharply higher in recent trading sessions by the news that Venezuelan strongman Hugo Chavez plans to repatriate Venezuela’s gold holdings from banks mainly in the UK and the USA. Given that the “physical market” in gold is approximately 100-times the size of the amount of actual metal by which it is purportedly backed, this is raising concerns of a dramatic short-squeeze. According to a study by the analysis unit of Citigroup, the price of gold in the nearest term will continue to rise, expected a price of U$D 2,000 per ounce underpinned by market uncertainty and unsteadiness of monetary policy. More in Spanish: (El Universal, 08-23-2011;$2000-por-onza.shtml and Gold Money,

Tax revenue share declines in 2010
The 2010 economic report issued by the Central Bank of Venezuela (BCV) showed that the tax revenues share of Venezuela's total fiscal revenues declined last year. According to the central bank, "as a result of increased oil prices and foreign exchange adjustment there was a change in favor of oil revenues and at the expense of funds of domestic origin." In 2010, the share of oil revenues climbed from 35.1% to 40.6%, while the weight of tax revenues fell from 64.9% to 59.4%. (El Universal, 08-22-2011;

401 companies reported taken over by the Government since January 2011
In 2011 to date 401 companies have been taken over by the Government, according to Carlos Larrazábal, president of the National Industrial Council, who adds the situation generates legal uncertainties, scares away investments and hurts chances of raising production. He made the statement after the expropriation of Forjas Santa Clara, TETRACERO and Cartonajes GRANICS. Larrazabal says over 80% of takeovers have taken place since 2009 and are growing. More in Spanish at: (Noticias 24, 08-22-2011;


Venezuela has world’s largest oil reserves: OPEC
The Organization of Petroleum Exporting Countries, a notoriously conservative organization, has stated that Venezuela has world’s largest oil reserves, even exceeding those of OPEC’s top producer, Saudi Arabia. Oil production in Venezuela is under the control of the state-owned Petróleos de Venezuela, S.A. company, or PDVSA. Petroleum Intelligence Weekly lists PDVSA as the world's fourth largest oil company, due to its proven reserves, production, refining and sales, MercoPress news agency reported. (Commodities Now, 08-19-2011;

Iran, Venezuela start building Petchem complex, Press TV says
Iran and Venezuela started construction on a petrochemical complex in the southern Iranian province of Bushehr, Press TV reported, citing National Iranian Petrochemical Organization Managing Director Abdolhossein Bayat. The countries are building a methanol unit in the southern port town of Assaluyeh, Bayat said yesterday, according to a report published on the website of the state-run news channel. Agreements for a similar project in the South American country have yet to be completed, he said, without giving details of the costs. (Bloomberg, 08-21-2011;

Companies acquired by PDVSA report losses
Diverse responsibilities assigned to state-run oil company Petróleos de Venezuela (PDVSA) have boosted its operating costs. Most industrial and agricultural companies purchased since 2008 are no longer profitable and report losses during the 2010 fiscal year. According to PDVSA's operating report, the companies purchased by the oil giant reported U$D 14 million in losses as of December 31, 2010 (VEB 60 million, at the exchange rate of VEB 4.28 per US dollar.) At the end of 2009, PDVSA's accounting ledgers showed the companies reporting earnings amounting to U$D 12 million (VEB 26 million at the exchange rate of VEB 2.15 per US dollar). (El Universal, 08-22-2011;

Logistics & Transport

Venezuela signed new agreements with Chinese company on port modernization
Venezuelan Transport and Communications Minister, Francisco Garces, and representatives of the China National Machinery Industry Corporation (SINOMACH) have signed an agreement to purchase equipment for Venezuelan harbors. The investment adds up to U$D 25.57 million for, among other items, 11 chargers, 78 forklifts, 52 trucks and tow trucks and 10 electricity generator plants. The equipment should be in the country in the next six months and will be distributed among the six harbors run by state-run harbor company Bolivariana de Puertos (BOLIPUERTOS). (AVN, 08-19-2011;


“I do not feel sick, but I am convalescing from the disease I had,” says Chavez
The president of Venezuela, Hugo Chavez, said this Sunday that he does not feel sick anymore, but “convalescent” from the disease he had. He made said statements during a religious ceremony held for his recovery in the Miraflores Presidential Palace, in Caracas. Chavez added that he is in a recovery process and that the next week will be very important. Depending on the results, he could undergo a third round of chemotherapy. (AVN, 08-22-2011;

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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