MEXICAN RESPONSE - BRV CEMENT NATIONALIZATION

UNCLAS SECTION 01 OF 02 MEXICO 001019

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/MEX, WHA/AND AND EB/OMA/IFD
STATE PLEASE PASS TO USTR (EINSSENSTATE/MELLE)
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GERI WORD
TREASURY FOR IA (ALICE FAIBISHENKO, ANNA JEWEL)

E.O. 12958: N/A
TAGS: ECON EIND ETRD MX VE
SUBJECT: MEXICAN RESPONSE - BRV CEMENT NATIONALIZATION


1. (SBU) Summary. President Hugo Chavez announced April 3
that the BRV would nationalize the cement industry. On April
7, Venezuelan Oil Minister Rafael Ramirez announced that
foreign companies will be allowed to maintain a minority
stake. Mexican company Cementos Mexicanos (Cemex) is the
largest foreign cement company in Venezuela with 52% market
share and over 550 million USD in revenue. Cemex and Mexican
government officials have approached the BRV for additional
details, though Cemex executives report they will consider
the decision final. Cemex stock fell in New York and Mexico
City on the initial announcement but had rebounded by market
close on the April 7. Nationalization of even part of Cemex
set off fears of nationalization for other Mexican companies
operating in Venezuela. End Summary.


2. (U) On April 7, BRV Oil Minister Rafael Ramirez announced
that foreign companies would be allowed to maintain a
minority stake in the cement industry, effectively
backpedaling from Venezuelan president Hugo Chavez's April 3
announcement that the Venezulean cement industry would be
completely nationalized. While Chavez, in his unanticipated
evening address, said that his government can not permit
businessmen to export raw materials needed to stop
Venezuela's current housing shortage, Ramirez said that
ongoing talks with the affected companies will open the way
toward a final takeover agreement. The new announcement
suggests nationalization of the cement industry would be
similar to nationalization of oil operations in the Orinoco
basin.


3. (U) This nationalization has been at least a year in the
making as Chavez had announced in April 2007 that he was
ordering tax authorities and the National Guard to inspect
the companies to uncover where they were sending product. At
that time he threatened expropriation and said that he would
not tolerate the companies selling products abroad at
international prices instead of selling locally where there
was a need (and presumably lower sales gains).


4. (U) Cemex is the largest cement company in Venezuela and
controls 52% of the country's cement production. Venezuelan
production accounts for 3% of total revenue for Cemex. The
company owns 3 plants in Venezuela employing more than 3,000
with a yearly production capacity of 4.6 million metric tons.
Cemex's revenues in Venezuela for 2007 were more than 550
million USD and assets were near 1 billion USD.


5. (U) In a release by the Secretariat of Foreign Relations,
the GOM announced they will "do everything in their power to
protect the legitimate interests of Mexican businesses
abroad." Undersecretary for Latin America and the Carribean,
Geronimo Gutierrez called in Venezuelan Ambassador Roy
Chaderton to discuss the situation. Mexican Ambassador to
Venezuela Mario Chacon also met with Venezuelan officials for
clarification.


6. (SBU) On April 7, before the announcement by Ramirez,
ConGen Monterrey spoke with Javier Trevino, Cemex's Senior
Vice President for Communications. Trevino said that Cemex
did not yet know any of the details regarding the
nationalization. Cemex's Venezuelan country manager had a
meeting scheduled with the Venezuelan Vice President to gain
more information. Trevino said that Cemex, however, viewed
Venezuela's decision as final and a likely prelude to further
nationalizations in the steel and food sectors.


7. (U) Chavez's April 3 announcement sent Cemex ADRs down
4.2% (1.16) to 26.32 on Friday in composite trading at the
New York Stock Exchange. Cemex's stock price on the Mexican
stock market fell 3.87% to 27.83 while the Mexican Stock
Exchange's IPC index, heavily dependent on Cemex, fell 0.46%.
Standard & Poor's announced on April 3rd that the move did
not affect their rating of Cemex. As of 4:30 pm on April 7,
Cemex stock had almost recovered its losses with a 3.95% gain
(1.04) to 27.36. On the Mexican stock market, the gain was
3.6% to 28.82.


8. (U) Cemex was founded in 1906 in Monterrey and currently
has operations in more than 50 countries. In 2007, sales
reached 21.7 billion USD. Cemex has been publicly traded
since 1976, though President Lorenzo Zambrano (grandson of
Cemex's founder) and family rank 785 on Forbes' list of
billionaires with a net worth of 1.5 billion. The Zambranos
are among the 10 wealthiest families in Mexico.

MEXICO 00001019 002 OF 002



Comment
--------------


9. (SBU) Ramirez's updated announcement helped alleviate some
of the worst fears of Cemex and other Mexican investors in
Venezuela; however, the poorly worded initial nationalization
announcement caused additional damage to Venezuela's
reputation among Mexican investors and the GOM. Venezuela's
compensation to Mexican shareholders will determine the
precise degree of damage.


10. (SBU) No matter how agreeable the terms of the takeover,
the announcement set off fears among other Mexican companies
operating in Venezuela, including Gruma (Grupo Maseca -
flour, corn and tortilla companies) and Femsa (Coca-Cola
brand bottling company),both of which operate in
Chavez-targeted industries.


Visit Mexico City's Classified Web Site at
http://www.state.sgov.gov/p/wha/mexicocity and the North American
Partnership Blog at http://www.intelink.gov/communities/state/nap /
GARZA