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P&G to Telefonica Lose Billions in Venezuela Stealth Devaluation

Companies such as Telefonica SA and Procter & Gamble Co. are slashing the value of assets held in Venezuela as a dollar shortage paralyzes the state-run foreign exchange system.

Madrid-based Telefonica said last week it will reduce Venezuelan holdings to 1.5 billion euros ($2.1 billion) from 2.7 billion euros this quarter as it gives up on the government providing dollars at the official exchange rate. P&G and Colgate-Palmolive last month said that using a weaker, secondary rate would cut their assets by as much as $280 million and $200 million, respectively.

“Companies are assuming they won’t receive any more money at the official rate,” Luis Andueza, administrative law partner at legal firm Norton Rose Fulbright, said by telephone from Caracas. “They are taking loses by adopting conservative accounting to calm the markets worried by negative news in Venezuela.”

The South American country’s official exchange rate of 6.3 bolivars to the dollar is becoming harder to obtain as the government saves greenbacks for food and medicine imports to calm protests that have left 19 people dead since Feb. 12. Venezuela’s dollar reserves have dropped by more than half since 2008, causing shortages of imported goods ranging from milk to car batteries.

The Finance Ministry didn’t respond to phone calls and e-mails seeking comment on the availability of dollars for companies.

Exchange Systems

Companies pay 11 bolivars per dollar in a secondary auction system known as Sicad, which was created last year for importers of non-essential products. Companies that can’t get access to any official currency systems pay about 80 bolivars on the black market.

The seven largest consumer and household goods companies operating in Venezuela, including Kimberly-Clark Corp., Avon Products Inc. and Newell Rubbermaid Inc., had the equivalent of $3.7 billion trapped in the country at the end of last year, calculated at the official rate of 6.3 bolivars per dollar, according to their annual and quarterly filings. Cosmetics maker Avon derives 5 percent of its profits from the country with the most Miss Universes in the world.

“Earnings revisions from Venezuela are likely to be negative rather than positive,” BMO Capital Markets consumer analyst Connie Maneaty said in an e-mailed response to questions. “Worse still, the Sicad rate is floating and may devalue more.”

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