By Steven Mufson
Washington Post Staff Writer
Friday, February 9, 2007
Exactly one month after Venezuelan President Hugo Chávez announced that he would nationalize key telecommunications, utility and oil ventures, AES agreed yesterday to sell its 82 percent stake in the country's largest private electrical utility to the Venezuelan government for $739.3 million.
The price is in line with the closing value of shares in Electricidad de Caracas, or EDC, on Venezuela's stock exchange yesterday, but it is less than half the $1.7 billion that Arlington-based AES spent to acquire the shares about seven years ago. Shares dropped substantially after Chávez announced his nationalization plans.
"I think this deal is a fair one," AES chief executive Paul Hanrahan said at a news conference in Caracas shown on state-owned Globovision, according to news service reports. Hanrahan said the negotiations had "respected the rights of investors."
"It wasn't our plan to sell EDC," Hanrahan added, news services said. "It's with a heavy heart that we part with EDC. We understand that it was a strategic decision of the Venezuelan government, and we respect that."
Experts on Latin America said the deal showed Chávez's determination to press ahead with his plans of boosting state control over what he has called strategic industries. Last month, Chávez also indicated a desire to take over CANTV, Venezuela's largest telephone company, and boost the government's stake in heavy oil joint ventures that include such companies as Exxon Mobil, Chevron, Total of France and BP.
"It's hard to negotiate with a gun to your head," said Bernard W. Aronson, former assistant secretary of state for Latin America and now managing partner at ACON Investments, a private equity firm that invests in the Americas and Europe. "Given the circumstances, [AES] probably cut the best deal they could."
The Venezuela utility EDC has been a key part of the strategy of AES, which has power-generating and other activities in more than 25 countries. EDC, which has five power plants serving 1 million customers and provides 14 percent of the nation's electricity, paid $184 million in dividends to AES in 2004 and 2005, according to the AES Web site. According to the memorandum of understanding signed yesterday, the dividend for 2006 will still be paid to AES; the amount has not been disclosed yet.
In filings with the Securities and Exchange Commission, AES listed the value of its EDC plants and equipment at $1.85 billion.
Shelby Tucker, an analyst with Bank of America Securities, said last month that after subtracting EDC's debt, the equity value of the AES stake was $1.5 billion.
Aronson said the price is higher than he expected after news of Chávez's expropriation plan. "It's not a ridiculous number, even if it's not an entirely fair number," he said, adding that Chávez wants "to be able to expropriate private property and then say he operates by the norms of markets and respects private property."
In the end, he added, the nationalization would "send a pretty negative signal to investors" who might consider putting money into Venezuela.
AES acquired its interest in EDC in 2000, after Chávez became president and after discussing its acquisition intentions with him. He had encouraged the company at the time, and after AES announced its plans, the Venezuelan stock market rallied. Asked about the AES investment by a Venezuelan newspaper in May 2000, Chávez said, "I do not have to meddle in that, because I consider it strictly private."
"It's very hard to see the economic reasoning for this," said Michael Shifter, vice president of the Inter-American Dialogue, a policy group in Washington. But, he said, "clearly he's intent on moving forward on this."