VZCZCXRO5711
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #1019/01 0982334
ZNR UUUUU ZZH
P 072334Z APR 08
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 1277
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUEHCV/AMEMBASSY CARACAS PRIORITY 1391
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY

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