Devaluation prompts losses in multinationals operating in Venezuela

Multinationals are feeling the heat of the contradictions of the "21st Century Socialism." In Venezuela, foreign firms have benefited from an increase in consumption fueled by government spending. However, their revenues in bolivars are held up as the Venezuelan Government has prevented them from repatriating dividends since 2009.

This fact, combined with a new devaluation of the Venezuelan bolivar, will result in problems for multinationals. Colgate-Palmolive said it will record extraordinary losses at USD 120 million in 2013 following confirmation of the devaluation of the bolivar.

"Colgate expects its earnings per share to drop USD 5-7 cents on a quarterly basis in 2013 over the conversion of the financial statements to the new Venezuelan exchange rate," Reuters reported.

For the US giant, the Venezuelan market is "hyperinflationary" since 2010. Recently, the company also reported that labor unrest hit their operations in Venezuela.

Devaluation in Venezuela is to adversely affect other multinationals as well. Two Spanish transnationals, namely Telefónica and BBVA, will be hit hard by the economic measures taken by the Venezuelan Government.

"In our assessment of BBVA, Venezuela represents 5.7% of the total value, so the impact of 30% devaluation would be 1.7%," said Banesto Bolsa, as quoted by Reuters.

For Telefónica, the parent company of Venezuela-based telephone carrier Movistar, there will be repercussions.

"Besides the impact on income (USD 3.09 billion in the first nine months, that is, 4.95 percent of total income), the telephone carrier holds USD 2.6 billion in cash and dividends that are waiting for repatriation," Banesto Bolsa explained, as quoted by Reuters.

Indeed, last week the president of the Telefónica subsidiary in Venezuela, Pedro Cortez, acknowledged the concern of the company about their inability to repatriate dividends generated since 2009.

"The issue of dividends is an important topic for us; we do not deny it. We have fulfilled all legal procedures and regulations that any multinational company needs to meet and we are waiting," Cortez said in a press conference.

Further, US automaker Ford also acknowledged it is facing difficulties in the Venezuelan market. During the presentation of the overall results of 2012 and the outlook for 2013, the company highlighted the domestic market restrictions as a hurdle for their growth targets.

"The competitive environment, currency risks throughout the region, especially in Venezuela, will have an adverse impact on our profitability," read the report submitted by the automaker in late January.

Economic research Ecoanalítica forecasts for 2012 suggested that multinationals had at least USD 9 billion held up in Venezuela.

Devaluation immediately translates into foreign exchange losses that undermine the finances of the companies as they will have to report fewer dollars for operations in previous years.

rdeniz@eluniversal.com