Venezuela is in dire straits. Once one of the richest countries in the western hemisphere, the average wage is now estimated to be less than half what it is in Cuba using market exchange rates.
There are many ways to measure how much money is currently fleeing the clutches of Bolivarian socialism, either to repay debts contracted when the oil price was far higher, or simply to shield the wealth of apparatchiks worried by the prospect of state collapse. (Miami condo developers send their regards.) Read more
Given the speculative frenzy around a supposed bid for Diageo from “Brazilian buyout specialist” 3G Capital (despite the source of the frenzy being a one paragraph news-in-brief), it’s perhaps worth casting an eye over 3G’s special treatment of previous acquisitions — such as Heinz.
And where better to start than Note 15 to the HJ Heinz Corporation II and Subsidiaries Q1 condensed consolidated financial statements, covering treatment of one of Heinz’s more important South American subsidiaries…
Venezuela – Foreign Currency and Inflation
The Company has a subsidiary in Venezuela that manufactures and sells a variety of products, primarily in the ketchup, condiments and sauces and infant feeding categories. The Company applies highly inflationary accounting to its business in Venezuela…
The state of Hugo Chávez’s health continues to be a closely guarded secret, yet his inability to attend his own inauguration last week suggests it remains delicate. While his absence from the ceremony last week is seemingly no bar to Chávez continuing his third term as president, a new election would of course have to be called in case he is unable to continue in his post due to his health, or in case he dies.
So what would happen then? What would Chavismo look like without the man himself? And how would the opposition react to this? Read more
It’s an expected slap in the face: the worse the reports about Hugo Chavez’ health, the more his country’s debt rallies.
The latest information from the Venezuelan government is that three weeks after his December operation Chavez remains in a Cuban hospital, suffering from a “severe” respiratory infection. Yet, as the FT reports, some think that the government is not disclosing the full details: Read more
Venezuelan officials on Monday denied that the decision to repatriate gold reserves was motivated by a mounting debt burden with China. Government supporters meanwhile took to the streets to celebrate the arrival of the first shipment last week, reports the FT. Nelson Merentes, president of the central bank, said the decision to transport more than 160 tonnes of gold, mostly stored at the Bank of England, back to Venezuela was prompted by worries about the global economic crisis. “We are bringing the gold back because unfortunately capital markets and the world economy are in turmoil, and for that reason it is preferable to seek protection,” said Mr Merentes. As well as a guarantee for Chinese loans, some analysts argue that the move may also be an attempt to reduce Venezuela’s assets abroad that risk seizure in the event that sanctions are imposed as a result of several pending international arbitration cases, with a number of major oil companies pushing for compensation after their Venezuelan operations were expropriated.
Bullion traders are preparing for one of the largest transfers of physical gold in recent history after Hugo Chávez, Venezuela’s president, ordered the country’s gold reserves to be returned to Caracas. Venezuela’s central bank is the world’s 15th largest holder of gold, with 365.8 tonnes, of which some 211 tonnes, worth $12.3bn, are held overseas, according to a proposal for the transfer from the Venezuelan central bank and finance ministry. Gold traders and logistics specialists said the transfer of 211 tonnes of gold – about 17,000 standard 400-ounce bars – would represent one of the largest moves of physical gold in decades. While billions of dollars worth of gold is traded every day, only a tiny proportion of it moves from vaults in London, New York and Zurich, says the FT.
President Hugo Chávez said on Wednesday that he will nationalise Venezuela’s gold industry in a bid to stamp out illegal mining and boost international reserves, the FT reports. “We don’t want war with anyone, but we have to defend our country,” said the former tank commander during an address to the army as he was presenting them with newly purchased Russian military equipment. “I’m counting on you because the area remains in anarchy, run by mafias … We can’t keep allowing them to take it away,” he said, adding that he would sign a decree in the coming days approving the move. “Let’s convert it into our international reserves because gold is increasing in its value.” The move follows opposition accusations that the Venezuelan government plans to transfer billions of dollars in foreign exchange reserves held in countries such as the US to banks in “friendly” countries such as China, Russia and Brazil in order to avoid its assets being frozen.
China is in talks to build an alternative to the Panama Canal that would link Colombia’s Atlantic and Pacific coasts by rail – a move that Bogotá also hopes will spur Washington to push for Congressional approval of a US-Colombia free-trade pact, the FT reports. “It’s a real proposal … and it is quite advanced,” Juan Manuel Santos, Colombia’s president, told the FT in an interview. “There’s a proposal to build whole railway system that would even connect Venezuela with the Pacific,” he added. Colombia is the world’s fifth-largest coal producer, but most is exported via Atlantic ports even as demand is growing fastest across the Pacific.
BP has agreed to sell assets in Venezuela and Vietnam to TNK-BP, its Russian oil venture, for $1.8 bn, Bloomberg reports. BP plans to sell assets to help cover costs incurred by the Gulf of Mexico oil spill, while TNK-BP is looking to expand beyond Russia. Completion of the deal is expected in the first half of 2011.
CMA DataVision released its quarterly global sovereign credit risk report on Tuesday, featuring 17 pages replete with charts and data on the ever-so-topical question: who’s the riskiest of them all? Venezuela continues its run as the riskiest sovereign, while Greece ranks 9th by CMA’s metrics. The UK, triple-A rating and all, is riskier on CMA’s proprietary basis than Japan, the Czech Republic, Slovakia and Slovenia. By the same measure, Finland, Australia and Hong Kong are safer than the US. Read more
Telefónica, the Spanish telecoms group, was forced on Monday to reiterate its earnings guidance after analysts warned that Venezuela’s devaluation could cost it $1bn in revenues. The company derives about 7% of total group sales from its subsidiary in Venezuela, its top Latin American market after Brazil. Its Venezualan business will be particularly badly hit because it consolidates profits at the parent level, its business is retail-focused, and Caracas is likely to block price increases.
Venezuela’s government has closed two private banks, a day after Hugo Chávez, president, said he would have “no problem” nationalising banks that failed to lend to the poor. The government seized control of four banks on Nov 20, citing insolvency, the questionable origin of some funds and a failure to comply with credit regulations. The finance minister said on Monday that two of them, Banco Provivienda and Banco Canarias, would be shut down indefinitely, while the other two could still be rescued.
Japan may cancel a planned $1.5bn loan for Venezuela’s El Palito and Puerto La Cruz oil refineries after the South American nation seized Japanese company assets, reports Bloomberg. The Japan Bank for International Cooperation is reviewing loans for the upgrades after Venezuela seized Japanese iron and chemicals assets and fell behind on payments to oil-service contractors.
Venezuela has announced it will “relaunch” its currency, the Bolivar next year – all part, rest assured, of President Chavez’s march to socialism – or somewhere.
But when the optimistically titled “strong bolivar” is launched on January 1 (lopping three zeros off all denominations), there is every expectation that this will mask a hefty devaluation. Fine, if you’ve perfected the art of doublethink. Not so fine if you have any memory of the Tequila crises in the 1990s. Venezuela’s poorly disguised move to print more money could be disastrous. Read more
Venezuela is in the spotlight in the global credit markets today, following news that the government is considering nationalising some key assets. The five-year credit default swaps — an instrument that provides protection against the non-payment of debt — was trading with a spread at around 153 basis points today in London.
That is 25 basis points wider than last week and means it costs $153,000 to insure $10m of debt against default.
However, the rising cost of debt insurance for Venezuela does not appear to have translated yet into a broader deterioration of investor sentiment towards emerging markets in general, traders said. And the swing in the Venezuelan CDS price still appears relatively modest compared to a more dramatic movement seen in Ecuadorian CDS prices last month on the back of a threatened non-payment of that country’s debt. Read more