Currency issues arising from Venezuela’s worsening economic crisis could force at least 40 major U.S. companies including GM and Merck to take billions of dollars of writedowns, Reuters reports.
The companies, all members of the S&P 500, carry at least $11 billion of monetary assets in the Venezuelan currency, the bolivar, on their books. But as tumbling oil prices have left Venezuela with fewer dollars, Reuters says, its currency board has steadily reduced approval for repatriation of dividends at the official rate — leaving companies with growing quantities of bolivars trapped by currency controls.
“It’s a huge deal and companies will get hit big,” says Ali Dibadji, an analyst at Sanford C. Bernstein & Co.
Diaper and tissue maker Kimberly-Clark recently announced a charge of $462 million for its Venezuelan business, resulting in a fourth-quarter loss for the company, while Ford Motor and oil services company Schlumberger NV took fourth-quarter charges of $800 million and $472 million, respectively, because of their Venezuelan operations.
“For Ford, the currency system and other conditions are so tough in the South American country that it has made an accounting change that will allow it to ring fence its Venezuela business so that it doesn’t have a direct impact on the company’s operating results,” Reuters said.
The official Venezuelan exchange rate is at 6.3 bolivars to the U.S. dollar and there are two other rates in the government system — known as SICAD 1 and SICAD 2 — at about 12 and 50.
“The problem is that the dollar value of the assets as disclosed in many of the companies’ accounts is based on either the rates at 6.3 or 12 and only a limited number of transactions are allowed at those rates,” according to Reuters.
Venezuela President Nicolás Maduro announced last month that he would merge the two existing SICAD rates and introduce another new rate to offer dollars via private brokers to vie with the black market rate. But the announcement fueled fears of another currency devaluation.
Most of the S&P 500 bolivar exposure is concentrated among 10 companies that have disclosed about $7.3 billion in assets linked to the country’s currency system, according to a Reuters analysis of their latest quarterly financial statements.