Private equity funds eye Venezuela acquisitions on hopes Biden could ease sanctions

By Corina Pons and Mayela Armas

CARACAS(Reuters) - At least two private equity funds are seeking to acquire stakes in Venezuelan companies that have survived the country's economic crisis, spurred in part by optimism that the Biden administration could ease sanctions on the South American nation, according to a dozen sources familiar with the talks.

The interest by funds, including Miami-based 3B1 Guacamaya Fund and Cayman Islands-based Knossos Asset Management, follows Venezuelan President Nicolas Maduro's abrupt 2019 liberalization of the economy https://www.reuters.com/article/us-venezuela-shops-idCAKBN1YK16X amid a sanctions program created by former U.S. President Donald Trump.

Maduro's unexpected overhaul scrapped a price control system and permitted dollar transactions for the first time in decades, allowing a small group of firms to emerge from the wreckage of a four-year hyperinflationary crisis that prompted many multinationals to leave https://t.co/I8H1Kakhhs?amp=1 the country or sell subsidiaries.

The investors' optimism comes despite the Biden administration's insistence that it is in no rush to loosen the screws on Maduro without concrete actions toward free elections.

The renewed investor interest in the country due to possible sanctions relief has not been previously reported.

'LONG-TERM HORIZON'

The 2020 U.S. election that brought President Joe Biden into office, along with his administration's ongoing review of U.S. Venezuela policy, has fueled optimism about the possibility for profitable investments in the South American nation's telecom, chemicals, health and food sectors.

"It is true that there has been interest in Venezuelan companies since last year," said a local business advisor who has participated in talks with foreign investors.

"The expectation that sanctions will be relaxed, and that the economy will improve, has influenced international investors. But they are looking for bargain basement prices," said the source, who requested anonymity to share the information.

The interested parties appear to be niche players with existing links to Latin America, given that mainstream investors still see Venezuela's risk as being off the charts.

"These are investors who have a long-term horizon and a high tolerance for risk," said Rodrigo Naranjo, director of local private equity association Venecapital, in reference to the funds currently seeking opportunities in Venezuela.

Biden's election has given some businessmen and investors hope he will take a different approach to Venezuela after former President Donald Trump was unable to force Maduro's resignation through sanctions.

Any move by Washington to ease limits on Venezuela's diesel imports - a change oil companies and humanitarian aid groups have pressed for - could provide a significant boost to Venezuelan private enterprise. But the Biden administration has given no sign that it is preparing a policy change.

Some analysts see recent decisions by Maduro's government - including the release to house arrest of jailed former executives of U.S.-based oil refining company Citgo, the naming of a new elections council, and a new World Food Programme agreement - as signals that Maduro is willing to negotiate.

A senior White House official on Monday told Reuters that Maduro was "sending signals" but added that such moves were insufficient without tangible progress toward elections.

"President Biden is in no rush to lift sanctions," a State Department spokesperson said when asked about the equity funds' efforts and hopes for an easing of sanctions.

POTENTIAL EASE ON SANCTIONS

Sanctions imposed on Venezuela by the Trump administration prevent U.S. companies from doing business with the country but they do not bar transactions or investment deals with private enterprise.

Biden's advisers have said that he is likely to maintain existing sanctions for now while seeking more consensus among U.S. allies on how to approach Maduro.

Administration officials have also said they are conducting a review of crippling sanctions and want to avoid punishing the Venezuelan people.

"I doubt that the White House will immediately lift all sanctions," said Geoff Ramsey, the director for Venezuela at the Washington office on Latin America. "What is possible is the issuance of some general licenses that could alleviate the economic situation in some sectors if they see more concrete measures."

Venezuela's information ministry did not immediately reply to a request for comment.

"I believe that investing in Venezuela right now is a great business," said Jorge Rodriguez, the president of the national assembly and a close Maduro ally, in an interview in April.

Many such deals may never go through because of the heavy discounts that investors are seeking, the sources cautioned.

But the talks, nonetheless, mark a shift for a nation that has not attracted significant foreign investment since a wave of expropriations by late socialist former President Hugo Chavez in 2007.

ONGOING TALKS

3B1 Guacamaya Fund is seeking to buy a 60% stake in Caracas paint manufacturer Corimon for less than $30 million, four sources familiar with the negotiations told Reuters.

The fund has been in talks with Corimon's president, Carlos Gill, about the operations, the sources said.

3B1 Guacamaya separately will acquire additional Corimon shares on the Caracas stock exchange via a holding company called Inversiones Tulipan LLC, two of the sources said.

Venezuela's securities regulator on April 30 said it had approved the purchase by Inversiones Tulipan of 14 million Corimon shares, or 9.2% of the total, for $0.20 each.

3B1 Guacamaya has raised $212 million since its opening in 2019, according to a document from the United States Securities and Exchange Commission.

Corimon, 3B1 Guacamaya, Carlos Gill and Inversiones Tulipan did not respond to requests for comment on the negotiations.

Knossos Asset Management, which for years invested in Venezuelan bonds, is preparing to raise capital to buy shares in companies listed on the Caracas stock exchange in partnership with local brokerage Grupo Solfin, Knossos Managing Director Francisco Ghersi told Reuters.

Knossos could also acquire shares in firms through private transactions, Ghersi said.

Chilean businessman Isidoro Quiroga is also looking to acquire stakes in companies owned by wealthy Venezuelan families or in oil sector joint ventures, according to sources familiar with talks his advisors have held in Caracas, in which they have discussed investing around $300 million.

Quiroga has already invested $20 million in the last two years in the purchase of companies in the insurance and food sectors, according to two sources.

Quiroga did not respond to a request for comment.

"(Business owners) are very careful with whom they negotiate," said a local legal advisor. "They tend to prefer buyers who are in the United States or outside Venezuela."

(Reporting by Corina Pons and Mayela Armas, additional reporting and writing by Brian Ellsworth and Matt Spetalnick; Editing by Dan Flynn, Luc Cohen and Aurora Ellis)