Additional material by Daniel Urdaneta
In the olden days, multinationals used to love having Venezuela operations because they looked great on paper. Local branches would make profits in bolivares, and headquarters would account for those bolivar profits at the ass-a-nine official exchange rate.
Though Venezuela was a wildly profitable place on paper, firms could seldom repatriate dividends in practice. But it wasn’t a huge deal. After all, CEO bonuses depend on earnings, not earnings minus non-repatriable #TropicalMierda earnings.
Well, those days have passed. Multinationals are increasingly pulling out of Venezuela. Corina Pons and Eyanir Chine over at Reuters give us the scoop of how corporates are selling their Venezuela operations, sometimes for no cash at all. It’s depressing:
U.S. auto parts firm Dana said in a 2015 filing that it had sold its local affiliate “for no consideration” to a Venezuelan firm called Manufacturing and Logistics Solutions.
While auto sales soared during the oil-boom era of late socialist leader Hugo Chavez, they dropped 80 percent in 2014 as Venezuela’s economy ran into hard times.
Dana sold the company for no payment, though it did secure an agreement that Dana would continue to supply raw materials and that the buyer would assume debts.
The piece goes in detail about how companies executed their decision to leave the country, painting a whole spectrum of hopelessness.
The luckiest ones sold them for deep discounts (up to 100%!) on the reported book values to shady third-party caza güiros:
Corimon – a Caracas firm best known for production of paint – in May purchased the local operations of Bridgestone Corp, the world’s largest tire-maker. (…) Carlos Gill, president of Corimon’s holding company, declined to disclose the sale terms but called the timing of the purchase “an opportune moment” for his company.”
General Mills – owner of locally popular Diablitos Underwood deviled ham – reported in a filing earlier this year that it had taken a $38 million pre-tax loss on the sale of its local unit to an undisclosed third party.”
Insurer Liberty Mutual said in statement last year that it was selling its local affiliate, Seguros Caracas, to a local entrepreneur, Humberto Gil. One source familiar with the deal described the arrangement as a “gift.”
In 2014, Danish conglomerate The East Asiatic Company (EAC) sold its Venezuelan food business, Plumrose, to Liechtenstein-based Valartis Opportunities Fund. Neither company responded to requests for comment.”
For Harvest Natural Resources, the end result was about the same, with a lot of pain along the way. PDVSA had delayed payment for years to the US-based company, so in 2013 they negotiated a $400 million asset sale with Petroandina Resources Corp (an unit of Argentina’s Pluspetrol). This operation was blocked by the Venezuelan government,and Harvest said in its filing that they believed govt officials would block any acquisitions by buyers based outside Venezuela. This led them to a desperate last resort: selling their stake at a third of the previously-agreed amount (a mere $143,2 million) to our Oswaldo Cisneros.
Down the list of casualties, there are the ones who just straight-up fled the country and either gave away their operations or abandoned them altogether. Those were the ballsiest: companies rarely shot down operations in Venezuela due to the threat of having their managers imprisoned under economic sabotage charges. Such was their desperation, and their lack of faith in the country’s future, that they didn’t give a damn, despiite knowing what would happened next:
Clorox, which left in 2014, said in a statement at the time that its Venezuela business was “no longer viable.” Kimberly-Clark suspended operations this year, citing inability to obtain raw materials or hard currency.
Both were taken over by the Venezuelan government and have resumed operations under state control. Jorge Arreaza, Vice President at the time, accused Clorox of setting an “evil example” by leaving. Labor Minister Oswaldo Vera said Kimberly Clark threw “thousands of workers onto the street.”
Finally, there’s a slice of optimists that are not ready yet to leave the country, but are bringing their books down to reality by so-called “de-consolidation”; fancy accounting slang for just getting rid of their Venezuelan operations from their financial statements. Behold:
Ford Motor Co and Oreo-cookie manufacturer Mondelez International Inc are among those who have written off their assets because of severe operational difficulties.
Ford told Reuters it remains “hopeful that the government will resolve local issues, and we can then begin to support the Venezuelan people with additional production.” Mondelez said it would continue to manufacture products “to the extent that we can locally fund operations and access necessary materials and labor.”