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Tuesday, January 09, 2007

Verizon could lose US$0.5bn

Every now and again tiny tremours occur in the Latin American politics which can have a dramatic effect on business throughout the world. Tonight we saw that Chief Nutjob, Hugo Chavez, is going to privatize the local telephony incumbent amongst other infrastructure assets.

Verizon owned 28.5% of CANTV, the incumbent, and that is worth US$538bn even after a fall of 14% in late trading. It is a real shame as Verzion has been trying to sell to the Carlos Slim Empire since last April. I’m sure that part of the reason that the deal wasn’t completed was that the ever shrewd Slim will have smelt a rat. No-one is sure of the terms of the renationalisation, but it I’m also certain that it will not be at fair market value.

Personally, I think this trigger a fall a fall in all Venezuelan assets of which the next biggest investor is Telefonica who owns the alternative Mobile Operator as well as a smaller interest in CANTV.

I also would be extremely careful about investing elsewhere in Latin America where there is someone with a similar perverted outlook of the world to Chavez ie Morales in Bolivia. I’d be extremely nervous about Daniel Ortega returning to power in Nicaragua.

In short, political risk is rising in Latin America. The best hope for capitalists is to bunker down and wait for lower oil prices and Chavez to make a complete mess of the Venezuelan economy.