It's pretty clear that Venezuela's President Hugo Chavez is constructing a set of cement shoes for the operations of cement makers in his country, including Global Gains and Stock Advisor selection Cemex
It's a path Chavez knows well. He most recently nationalized the oil industry, forcing Big Oil players ExxonMobil
"Let it be nationalized," Chavez said prior to seizing the assets of the country's largest telecommunications operator, CANTV. "All that was privatized, let it be nationalized." He subsequently had the company delisted from the New York Stock Exchange.
He also took over the largest electrical utility in the country, Electricidad de Caracas, a subsidiary of U.S.-based power company AES
Cemex is the largest producer of cement in Venezuela, with a 50% market share and more than half its production going into the country. It witnessed a 22% jump in revenue there last quarter, but the country only accounts for about 4% of the cement maker's total revenue.
Nor is Cemex alone in Chavez's sights. Both Holcim and Lafarge
For example, Cementos Andino was acquired in the privatization sale in 1998 by its parent, Cementos Argos, for $81 million. It's hoping Venezuela will pay it $230 million for the assets seized, which would cover the purchase price, improvements, and one year of lost profits. What, if anything, Chavez is willing to pay has not been said.
Housing has been booming in Venezuela as Chavez has poured money into the economy. That boom, rather than the actions of the cement makers, has led to the cement shortage. Yet Chavez has imposed price controls on the material as well -- and has threatened sanctions if the cement makers violate them -- so that supply and demand are unable to find an equilibrium.
Regardless of what the cement makers actually do, Chavez will do what it takes to consolidate control of the industry within his grasp. The protection payments some companies have agreed to pay, or control of projects they have given up, may only be a temporary reprieve, should Chavez decide he ultimately wants full control.
Any pretext studies of environmental harm, like those Chavez is preparing against Cemex, seem simply like ways to fatten up the hens before leading them to slaughter. With its limited connection to Venezuela's market, however, Cemex shareholders needn't fear their investment will lay an egg. Exposure to America's housing industry is probably of more immediate concern, compared to a few scrambled eggs south of the border.
Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool's disclosure policy belongs to the people.
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