Companies Hang On to Venezuela Plants Despite Seizuresby
After GM seizure, Ford, Toyota and Fiat Chrysler remain
Companies must adapt, work with the government, or leave
With constant currency devaluations, economic crisis, political unrest and forced nationalizations, being a foreign company with operations in Venezuela is no easy feat.
General Motors Co. last week became the latest in a long list of multinationals to throw in the towel as President Nicolas Maduro continues the anti-business legacy of his predecessor, the late Hugo Chavez. After authorities seized the auto-maker’s plant and took its vehicles on Wednesday, GM announced it would be shutting down its business in Venezuela, joining a long list that includes Exxon Mobil, Clorox, Owens-Illinois and Kimberly-Clark leaving the nation that was once the wealthiest in South America.
But many have remained, with more than ten percent of S&P 500 companies having addressed Venezuela in their regulatory filings this year. While little financial information is publicly available after most companies de-consolidated Venezuelan operations from balance sheets to account for triple-digit inflation and strict currency controls, responses to questions on earnings and conference calls this year show a diverse number of strategies among corporations on reasons for staying in the country -- or leaving.
While some companies see future potential in the country with the world’s biggest oil reserves and large consumer base, others have figured out a way to adapt operations or work with the current government to survive. Procter & Gamble and Colgate-Palmolive, for example, met with government officials about providing affordable household goods to neighborhood distribution networks.
The risk of clashing with Maduro’s government, though, remains real. He ordered an investigation of Spain’s Telefonica SA’s local Movistar unit on Thursday night, alleging that it had helped his opponents deliver text messages urging people to participate in anti-government protests.
After the GM raid, Ford, Toyota and Fiat Chrysler, all still in Venezuela, said they haven’t changed their plans.
Here’s a selection of recent comments from regulatory filings:
Chevron (Jan. 27):
We’ve been able to navigate pretty well down there and have good relationships in Venezuela that we’ve been able to maintain. And we have a structure in place that is enabling us to continue work, enabling us to continue to invest, and enabling -- importantly, to enable the contractors, the tax authorities, and ourselves to get paid. It’s unquestionably a difficult time. Thus far, we’ve been able to manage it, working well with the government.
Repsol SA (Feb. 23):
We have a solid, fluid relationship with PDVSA and within the framework of difficulties that you perfectly know, we will continue to be involved in the country, trying to maintain and increase our operations in Venezuela.
Aggreko (March 7):
In Venezuela, our relationship with both customers, Corpoelec and PDVSA, has strengthened during the year. $90 million of our PDVSA debt has been converted to interest-bearing promissory notes and the first interest payment relating to this was received as anticipated in January.
Schlumberger Ltd (Jan. 20):
Obviously there is very significant potential activity there. The reactivation of the business there is clearly going to come down to the ability of getting paid.
Coca-Cola Femsa (Feb. 24):
In Venezuela, we continue to focus on our non-caloric alternatives to mitigate the sugar shortages that we have experienced in the previous quarter. In a deeply affected consumer environment characterized by lower disposable incomes, higher levels of inflation, and scarcity of goods, we experienced close to 60% volume contraction for the quarter. In the face of this exceptionally challenging environment, we’ll remain committed to satisfying our Venezuelan consumers’ beverage needs.
Amcor (Feb. 12):
The Venezuela business has always been very profitable, and it is and it continues to operate; and that’s the important point...It’s way too early to call any recovery there. That country has got some issues to work out, which are well-documented. But when it does, we’ll be there and we’ll be well-positioned to benefit from any turnaround.
Smurfit Kappa (Feb. 8):
We have the ability to export from Venezuela. We have the fiber. So, putting everything together, it’s a very nice alternative and strategy to maintain Venezuela operation as normal as possible.
Bekaert (March 1):
In Venezuela, we did have to shut the factory for a significant period of time through the first half of the year. However, we found a way now to operate without sourcing wire rod locally because that’s become impossible, and we are able to import a bit of the wire rod from overseas, that’s keeping us going.
Copa Holdings (Feb. 16):
We’re not selling in Venezuelan currency anymore. We’ve not been selling in bolivares since 2015, and we have zero bolivares right now in our balance sheet.
Masisa SA (March 22):
Venezuela had a difficult year 2016...We faced a significant deterioration of the business profitability in the domestic market, which was offset mostly by a very significant increase in export volumes.
Aspen Pharmacare (March 10):
We had an absolute implosion in Venezuela and that impacted production...All we did, stop your factory, take the Venezuelan products, pack them and send them off to the other territories.
Syngenta (Feb. 8):
In Venezuela, we stopped sales completely in order to mitigate risk.
RHI (March 14):
We had the crisis, which came up in Venezuela. And out of this, we had to stop deliveries there.
Natus Medical (Feb. 1):
It is a little bit of a wildcard with everything going on.