Wednesday, February 11, 2015

2015 Venezuelan Bolivar Currency Deval To Affect Many US Multinationals, Merck Included

I'll likely come back to offer some more detailed analysis and background here, late tomorrow -- but I'm too tired tonight to go through all of it. Very early start tomorrow. . .

For now, just accept that this is a significant part of the forecasted currency headwind most US multinationals expect, if they do business in Venezuela, amid an economy experiencing plummeting oil field revenues, this year. Venezuela proposes a new three tier system for trading currencies in country. It is an improvement over the prior systems, but like all the others before it, this one is byzantine -- and only quasi-market driven. [So, Merck will suffer the same vagaries here that BMS, Pfizer and Abbott and Lilly will.] Here is a bit from the Business Recorder:

. . . ."This third mechanism is open, free, in which bidders and buyers exchange offers," Marco said during a press conference with [Venezuelan] Central Bank President Nelson Merentes. The currency controls have been providing US dollars at three different rates: 6.3 bolivars for food and medicine, and two complementary rates of around 12 bolivars and 52 bolivars for other goods through systems known as Sicad I and Sicad II. But dollars fetch nearly 190 bolivars on the black market, according to widely referenced website

Marco and Merentes did not offer details on what the open rate would be when the market kicks off in coming days. Brokerage sources consulted by Reuters say the rate could begin at around 120 bolivars, substantially lower than the black market but still more than double the lowest existing rate.

The Sicad I auction system will continue to hold periodic auctions for specific sectors of the economy and will for the moment continue providing dollars at the rate of 12, Marco said. The new Simadi market will replace the Sicad II rate. Investors generally interpret devaluations positively because they leave the government with more hard currency available to service debt. Venezuelan bonds, which have been trading at distressed levels on fears of a possible default, were up across the board on Tuesday, with yields on several dropping to one-month lows. . . .

More tomorrow evening, dear readers. And. . . onward.

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