Venezuela forex woes hold up CANTV dollar dividends

Forbes.com-Reuters, 04.17.03, 3:56 PM ET    

CARACAS, Venezuela, April 17 (Reuters) - Venezuela's No. 1 telephone company CANTV said Thursday the lack of a working conversion mechanism under government foreign exchange controls meant foreign shareholders would probably be unable to receive in dollars their share of a dividend due April 23.

The announcement by CANTV <TDVd.CR>(nyse: VNT - news - people), whose main shareholder is U.S. telephone company Verizon Communications (nyse: VNT - news - people), was an example of multiple problems raised by the slow introduction of regulations governing the currency controls.

These were decreed by President Hugo Chavez's government Feb. 6 to stem capital flight and halt a slide in the bolivar currency caused by a crippling two-month opposition strike that slashed oil output by the world's No. 5 petroleum exporter. The strike ended in early February.

CANTV said in a statement sent to Reuters that the remaining portion of the ordinary dividend for 2003 of 71 bolivars per share, or 497 bolivars per American Depositary Share, to be handed over April 23, would be paid in bolivars.

Under the foreign exchange control regime, the state currency control board CADIVI must approve and establish procedures for the conversion of bolivars into U.S. dollars for the payment of dividends to foreign investors. The government has set a fixed rate of 1,600 bolivars to the dollar but is establishing detailed procedures for different transactions.

"As of the date of this announcement, CADIVI is yet to establish such procedures (for dividends) and therefore it is unlikely that foreign investors will be able to receive their portion of the dividend in dollars by April 23," CANTV said.

Left-winger Chavez's government had announced that the repatriation of profits and payment of dividends to foreign investors would be authorized under the controls, which have been heavily criticized by Venezuela's private sector.

DOLLAR DROUGHT DRIES UP BUSINESS Business leaders say the stringent currency curbs, coupled with tight price controls and long delays in the introduction of bureaucratic mechanisms to allocate dollars for essential imports and foreign investment transactions, are virtually paralyzing business activity in the already battered economy.

CANTV said it was working with CADIVI to try to facilitate the process of requesting the purchase of dollars with which to pay dividends to foreign investors.

"At this point in time, the Company cannot reasonably give any guidance with regards to the length of the process and possible dates for the conversion of bolivars into dollars," it said in its statement.

In February, CANTV reported that its 2002 net income fell nearly 28 percent and the company posted a fourth-quarter loss as its results were undercut by the opposition strike, a sliding bolivar and a smaller nonresidential client base.

There have been other cases of the currency controls hitting foreign investors and manufacturers in Venezuela.

General Motors Corp.'s (nyse: GM - news - people) Venezuelan unit, the largest vehicle assembler in the South American country, said last month it was temporarily halting production because of problems caused by the foreign exchange curbs.

Foreign-owned vehicle assemblers like GM have been unable to import essential parts due to the restrictions and a long delay in the allocation of dollars.

Despite the barrage of complaints from foreign and local businessmen, populist Chavez has effusively praised the currency board CADIVI -- which is headed by a political ally -- saying it was doing a "tremendous job".

He said the foreign exchange controls were "here to stay," although some of his ministers have said they will eventually be lifted as the oil-reliant economy shows signs of improvement.

Opponents in the business community have accused Chavez of using the controls in a political vendetta to deny access to dollars to firms which supported the grueling opposition strike in December and January. The stoppage tried unsuccessfully to force him to resign and hold early elections.