The Bolivarian Republic just settled with the Argentine owners of Ternium over Sidor, its Venezuelan steel unit. The Venezuelan government nationalized Sidor in 2008. Chávez offered $800 million. Ternium scoffed and asked for $4 billion. They just decided upon $1.97 billion. Is that a fair price?
Ternium bought Sidor for $1.79 billion in 1997 and subsequently invested a lot of money, but that doesn't really tell you anything. On the other hand, Sidor enjoyed revenues of $2.4 billion in 2007. At a discount rate of 10 percent, the agreed-upon price implies a Sidor profit margin of 8 percent, which is consistent with the steel industry's average margin during the 2001 recession. Conversely, at a profit margin of 16 percent, about what the industry earns in a boom, the implied discount rate is 19 percent ... which seems reasonable for a high-risk area like Venezuela. (Bernard?)
Upon announcement of the deal, the price of Ternium shares jumped 49 percent, to $15.67. That said, the stock peaked at $45.18 on July 2, 2008, before sliding to $34.01 on August 8, and then collapsing to $4.65 by November 20. The problem with interpreting that price collapse as evidence that the offered price isn't fair? President Chávez announced the nationalization in April.
In other words, the price appears to be fair. Another demonstration of the power of ICSID? Perhaps. We don't know if the Venezuelan government offered more money out of fear of an adverse arbitration result, or if it offered more money at the urging of the “semi-dictator” of Argentina, or it offered more money because the President of the Bolivarian Republic decided that it was simply the right thing to do.
But we do know that the foreign oil companies can go to ICSID, and that Caracas seems to be a bit worried about the prospect. We also know that Cemex is pursuing the ICSID route. So we will see if the empire strikes back at the Revolution.
P.S. FWIW, Argentine embassy accounts in France remain frozen.
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