Latin Finance - March/April 2010 - 34

chile privatization Selling Chilean Copper by Jason Mitchell S ebastián Piñera, representing the Alliance for Change coalition, is the ﬁrst right-wing president for Chile in almost 20 years. He beat Eduardo Frei, who stood for the incumbent center-left alliance Concertación, by a narrow margin during a January run-o . Piñera’s victory was greeted with considerable car hooting in the wealthy Las Condes neighborhood of Santiago. During the election campaign, Piñera said he would privatize up to 20% of Codelco, which is wholly owned by the state. Analysts estimate the market value of the entire group at $38-$66 billion, depending on the widely shifting copper price. However, its employees have one of the strongest trades unions in Chile and his party will not have an overall majority in congress. Piñera’s supporters will control the Lower House while the now-opposition Concertación will have a slight majority in the Senate. “Piñera is very pragmatic,” says Armen Kouyoumdjian, an independent Chilebased economics consultant. “His priority will be to try to ensure that the right-wing is an enduring force in Chilean politics,” he adds. Chileans are sensitive to the right-wing following the previous military dictatorship. “He wants to try to lead by consensus and not pick too many ﬁghts,” adds Kouyoumdjian. “He will ﬁnd it very hard to privatize even a small proportion of Codelco and, in the end, I believe it will not happen,” says Daniel Kerner, Chile analyst at Eurasia, the research group. He adds that Piñera almost campaigned as a center-left candidate, and that such political distinctions are vanishing. “One can argue that there is no real right in Chile nowadays,” adds Kerner. In addition, Chile raises a considerable amount of revenue from Codelco being state owned and it is unclear weather it would raise as much in taxation if Sebastián Piñera, the billionaire president-elect of Chile, faces stiff resistance to privatizing 20% of Codelco, the world’s biggest copper producer. He will move very carefully. was more than the $10 million he spent on his election campaign and was attributed to speculative trading. Piñera - who has a PhD in economics from Harvard - owned 26% of LAN, before he fulﬁlled an election promise to divest of his equity at the start of February. His holding company Axxion owned 19% of the stock, while the other 7% is held through another holding company, Santa Cecilia. Axxion shares rose by 140% in the four trading days after the presidential election, before declining 47% during the next two sessions. Piñera also owns 100% of Chilevisión, a terrestrial television channel and 13% of Colo-Colo, Chile’s most popular soccer club. Piñera says he will not divest his positions in football and TV. The president-elect called an emergency general meeting of shareholders of Axxion, 98% owned by Piñera, for early February to vote on the sale of Axxion’s LAN equity. The Cueto family, through the holding company Costa Verde Aeronáutica (which already has 26% of LAN), has the ﬁrst option on the shares and had 20 days to decide whether or not to purchase Piñera’s stake. Another controversial aspect of the sale of Piñera’s LAN shares is the fact that he has opted not to put them in a blind trust. The president could use the money he makes on LAN – up to $1.5 billion – to buy shares in other companies. LF Campaigning for change: Piñera steps in privatized. From 2006 to 2008, Codelco data shows it paid the government $22.63 billion in pre-tax proﬁt, an average of $7.54 billion per year. However, for the ﬁrst three quarters last year, it reported a pre-tax proﬁt of $2.06 billion, down from $4.80 billion in the corresponding period of 2008 owing to a steep drop in copper prices. The state levies a 10% tax on export sales accruing towards defense procurement. Codelco also pays a 5% royalty and 17% corporation tax common to any mining group. On top of that it pays an additional tax on earnings of 40%. One of the controversies since Piñera was elected president is that his stake in LAN Airlines increased in value by $11 million from January 15-18, the weekend of the presidential elections. The increase UPDATE For the full story and daily news on Chilean markets, see www.latinﬁnance.com > 34 LATINFINANCE March/April 2010

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Latin Finance - March/April 2010

Table of Contents for the Digital Edition of Latin Finance - March/April 2010