Cemex may escape Venezuela cement nationalization

Mon Apr 7, 2008 12:13pm EDT

By Robin Emmott

MONTERREY, Mexico, April 7 (Reuters) - Mexico's Cemex, the world's No. 3 cement company, could avoid Venezuela's planned nationalization of its cement industry because Cemex's operations have always been in private hands, a company source and analysts said on Monday.

Venezuela President Hugo Chavez, who announced a cement takeover plan last week to increase government influence in key industries, said in comments published on Monday that his plans will only affect companies privatized by previous governments.

Shares in Monterrey-based Cemex(CX.N: Quote, Profile, Research)(CMXCPO.MX: Quote, Profile, Research) surged on the news after falling sharply late last week. The company's Mexico City-listed stock rose 3.49 percent to 28.80 pesos, while in New York, its shares rose 4 percent to $27.40.

A source close to Cemex said on Monday the company had entered the Venezuelan market in 1994 with the purchase of Vencemos, which was never a state-owned company.

"It was always owned by the Mendoza family," the source said. Cemex has not yet been notified by the Venezuelan government of any takeover, the source said, adding that could be a positive sign.

Analysts were cautiously optimistic. "The fact that Cemex did not buy a privatized company could help, although it is tough to say what is going on in Chavez's mind," said Carlos Peyrelongue at Merrill Lynch.

Cemex's efforts to meet Venezuelan demands that it should prioritize domestic demand and reduce exports and Cemex's cement discounts for the poor could also help, said Marcelo Telles of Credit Suisse.

"Mr. Chavez's arguments for nationalizing Cemex's Venezuela operations would appear groundless," he wrote in a note.

Being forced out of Venezuela would not deeply affect Cemex's overall profitability, as the Venezuela operations only accounted for 4 percent of the group's total earnings before interest, tax, depreciation and amortization (EBITDA) in 2007.

"But it would be positive if Cemex could stay in Venezuela, where it is achieving double-digit sales and EBITDA growth," said Francisco Chavez at BBVA Bancomer.

The Mexican government has strongly condemned the possible takeover of Cemex's Venezuelan holdings, saying the property and rights of Mexicans were not being respected.

Since Chavez tried to seize the presidency in a botched coup in 1992 he has promised to reverse privatizations that happened under previous governments.

Since winning power at the ballot box in 1998, he has implemented much of his pre-coup program.