Oct. 10, 2000 (Far Side Venezuela)Local stocks rose slightly today, fueled by a jump in the shares of the main electric utility Electricidad de Caracas.
Despite a majority of shares falling, the index rise was mainly attributed to a 1.6 percent jump in EDC to Bs.310 per share, which could benefit from a rise in rates being considered by the government.
Banco Caracas , 65 percent of which was bought last week by Banco Santander Central Hispano (BSCH) unit Banco de Venezuela for $220 million, slipped by 0.8 percent to Bs.315 per share.
Trading volume slipped to 884 million bolivars ($1.3 million), focused on the financial sector, but the index gained 0.3 percent, or 19 points, to close at 6666 points.
The bolivar weakened against the dollar to close at 691.25/692.25, on scarce dollar sales by the Central Bank.
Fitch affirms Banco de Venezuela rating
Banco de Venezuela’s agreement with Banco Caracas was reached with a group of shareholders controlling a majority stake in the latter, but the acquisition will take the form of a public offering to be extended to all of Caracas’ shareholders.
The offer values Caracas at $339.8 million. Banco de Venezuela will receive a minimum capital injection of $300 million from its shareholders, Banco Santander Central Hispano (BSCH) of Spain to fund the purchase.
BV is paying 1.8 times book value for the Caracas acquisition, implying a substantial amount of goodwill (estimated to be in the region of $150 million).
The acquisition is subject to approval from the Venezuelan regulators. Once the acquisition takes effect, Caracas will be incorporated into BV.
Following the merger, BV will control a deposit market share of approximately 20 percent.
Fitch expects some weakening of the efficiency ratios as a result of the merger, although preliminary estimated figures published by BV do not indicate any material deterioration.
Given shareholders’ plans to inject new capital and management’s intention to adopt an aggressive write off policy in respect of Caracas’ non-performing loans, asset quality and capital adequacy ratios are unlikely to be negatively affected in any material way.
The closing date for the public offer is Dec. 20.
Both BV and Caracas operate as “universal” banks in Venezuela and are among the longest established financial institutions in the country. BV is currently Venezuela’s third largest commercial bank, controlling a deposit market share of some 12 percent.
BV’s announced acquisition is the latest event amid the rapid consolidation of the local banking system. Fitch views the process as essential if banks are to continue to gain economies of scale and operate efficiently within a market which is characterized by sharply lower margins and increased competition.
©Far Side Venezuela, 2000