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Chavez Plans To Nationalize Cement Companies

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By STEVEN BODZIN and THOMAS BLACK

Bloomberg News

Published: April 5, 2008

Venezuelan President Hugo Chavez said he will nationalize the country's cement companies to boost supplies of construction materials, a pledge that threatens the operations of Cemex SAB of Mexico, the largest producer.

The state will pay plant owners "whatever it costs," Chavez said in issuing orders for the takeovers. Cement makers are causing pollution and failing to invest in new technology, he said.

A seizure would also take assets of Lafarge SA of France and Holcim Ltd. of Switzerland. Venezuela took over a plant from Colombia's Cementos Argos SA in 2007.

The nationalization order comes as Chavez seeks to alleviate shortages fueling a 25.4 percent inflation rate in Latin America's fastest growing economy. The government is restricting food exports, and Chavez said in January that he would ban asphalt sales abroad. Chavez has accused building-material suppliers of creating a monopoly that slows home and road construction while overcharging for its products.

"Starting from now, all legal and economic measures should be taken to nationalize the national cement industry in the short term," Chavez said, according to a communications ministry statement issued today.

Chavez already has seized the telephone and electricity industries, and increased state control over oil production in his drive toward socialism. He paid almost market value for telecommunications company CANTV. With oil projects, he has refused to go above book value. The government, after spending billions of dollars on the takeovers, is in arbitration with ConocoPhillips and Exxon Mobil Corp. over oil venture payments.

Cemex is the largest domestic supplier of cement and ready-mix concrete in Venezuela, with annual cement production capacity of 4.6 million tons and 33 ready-mix plants, according to its Web site. A local subsidiary, Cemex Venezuela SACA, had a market value of 1.18 billion bolivars ($547 million) at the start of trading Friday. "Cemex has not received any official notification about this decision from the government of Venezuela," company spokesman Jorge Perez said Friday in a telephone interview. "Cemex has requested an explanation from the appropriate Venezuelan authorities."

Venezuela's contribution to Cemex's profit has declined since Cemex purchased Australia's Rinker Group Ltd. for $14.2 billion in July, said Marcelo Telles, an analyst with Credit Suisse in Mexico City. Cemex's operations in Venezuela account for less than 5 percent of the company's earnings before interest, taxes, depreciation and amortization, a measure of cash flow known as Ebitda, he said.

Venezuela is a market Cemex would like to hang on to, Telles said, because profit margins are higher than its operations in the United States or Europe. The terms of having to sell to the Venezuelan government may not be favorable, he said.

"I don't think they would get anything close to fair value, but it's too early to say," Telles said.

Cemex's three Venezuelan cement plants had 45 percent of the market in 2007.

Holcim, the world's second-largest cement maker, is taking the threat "seriously," spokesman Peter Gysel said in a phone interview. The Swiss company runs a plant in Venezuela's Cumarebo region and another in San Sebastian. Together, the factories produce 2.4 million tons and employ more than 500 people.

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