Banking on transition: Buying shares in Venezuelan rum-maker

Rum distiller Santa Teresa has launched Venezuela‘s first public share offering in 11 years. The company is optimistic that the socialist-ruled nation may see an economic transition similar to that of China and the Soviet Union.

Santa Teresa is one of Venezuela’s best-known brands and exports via an alliance with Bermuda-based Bacardi Ltd. On Friday, in the firm’s first in a series of offers of bolivar-denominated shares, it sold an initial one million shares. The company hopes to raise the equivalent of a modest $3m this year.

Company president Alberto Vollmer compared the sale, the first public share offering since 2008 on the diminished Caracas bourse, to the reopening of the Shanghai Stock Exchange 30 years ago that helped revive China’s economy.

Another Venezuelan company, real estate developer Fondo de Valores Inmobiliarios (FIV), also plans a share issue this year, according to its president, Horacio Velutini.

The two men belong to an informal group known as “Optimists Anonymous”, which is made up of 39 corporate leaders, bankers and investors who think businesses will become profitable again. Group members hold this view because they believe President Nicolas Maduro will not be able to reverse his opening of the ailing economy.

Last year, the government unexpectedly relaxed 15 years of stringent economic regulations, abandoning enforcement of price controls and allowing dollar transactions in the face of runaway inflation and sanctions imposed by the United States.

The Santa Teresa and FIV bosses’ views contrast with those of the rest of the business establishment, the political opposition, and US President Donald Trump’s administration – all of which maintain the economy cannot fully recover with Maduro in power.

“When we sit down with authorities, or businesses, or trade unions, we tell them that Venezuela’s economic recovery will involve [share offerings],” Vollmer told Reuters.

“We’re taking the first step, let’s see who follows.”

Vollmer led a ceremony at a Caracas roof bar on Friday, where attendants toasted with glasses of rum to celebrate the sale of shares that will finance the expansion of warehouses and the acquisition of new barrels to age their spirits.

Investors included Venezuelans living in the country and abroad.

‘Loosened the moorings’

Velutini said his real estate group plans to use the proceeds of its planned share sale to buy up office space in Caracas, which he says is looking cheap.

“After 15 years in a controlled economy, they’ve loosened the moorings, and we’re not used to it yet,” said Velutini, who likened the situation to the Soviet Union’s perestroika. “Venezuela is entering a cycle of liberal economic opening.”

Under Maduro’s rule since 2013, Venezuela has become a deeply unequal society in which small pockets of flashy wealth in the capital and major cities contrast with deep poverty and chronic malnutrition driving a migration exodus.

Vollmer and Velutini say members of “Optimists Anonymous” have met US authorities to discuss how Washington’s sanctions have affected private sector businesses.

Those sanctions prevent US firms from doing business with Venezuela’s government and state-run companies, but do not explicitly block commerce between private companies.

Venezuelan businesses say that in practice, overzealous compliance of sanctions often hamstrings their operations, and measures such as prohibiting direct flights between the two countries boost their operating costs.

The US Department of State, in response to questions, said the US is using sanctions to support a “transition to free and fair presidential elections”.

“US sanctions on Maduro and his cronies have been targeted, while also ensuring that the flow of humanitarian goods and services to the Venezuelan people is not prohibited by US sanctions,” said a US State Department spokesperson.

Share offerings, albeit a pittance compared to others internationally, could serve as a lifeline to Venezuelan companies that have been effectively cut off from bank financing. Inflation as high as 30,000 percent – along with government regulations – left banks unwilling to provide even the most basic of loans.

The Caracas bourse was largely abandoned after late socialist leader Hugo Chavez in 2007 nationalised the two largest companies that traded on it. However, the exchange stayed open with a trickle of business.

Firms would, at times, issue shares to existing shareholders as a way of paying dividends. Entrepreneurs now hope to lobby the government so they can sell dollar-denominated stocks.

Local finance industry experts consulted by Reuters said they believe there is a demand for shares both within the Venezuelan business community and among Venezuelans abroad who see the economic situation changing.

“Negativity is like a virus that reached Venezuela, and we’re the antibody,” said Velutini.