Telefonica Cuts Venezuela Asset Value by $3.2 Billion on Bolivar

Telefonica SA, the biggest European phone carrier in Latin America, reduced the value of its Venezuelan assets by 2.8 billion euros ($3.2 billion) by switching to a lower exchange rate for last year.

Telefonica will calculate its Venezuelan figures at 50 bolivars to the dollar when reporting earnings for 2014, the Madrid-based operator said Monday in a regulatory statement. That’s 76 percent lower than the 12 bolivars per dollar used in accounts earlier last year. The Venezuela business represents about 1 percent of Telefonica’s revenue, the company said.

Venezuela’s government has long limited cash exports by foreign companies, and a week ago introduced its fifth parallel currency market in 12 years, dubbed Simadi, in an attempt to meet demand for dollars while eliminating the black market. Telefonica’s writedown stems from changes to Venezuela’s exchange-rate mechanisms last year and wasn’t related to the newly announced rules.

The revision cuts last year’s operating income before depreciation and amortization by 915 million euros and net income by 399 million euros, Telefonica said. The company is scheduled to publish full-year figures on Feb. 25. Telefonica didn’t say today how the Simadi system may affect earnings in 2015.

Telefonica fell as much as 1.8 percent to 12.91 euros as of 9:23 a.m. in Madrid. That pared the stock’s gain this year to 8.3 percent, valuing the company at 60.1 billion euros.

To calculate the amount of money trapped in Venezuela at the end of the third quarter due to currency restrictions, Telefonica used an exchange rate of 12 bolivars to the dollar, Chief Financial Officer Angel Vila said in November during an earnings presentation. The company also accelerated its investment spending in the country to use the cash, Chief Operating Officer Jose Maria Alvarez-Pallete said at the time.

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