BOSTON: A massive effective devaluation of Venezuela's bolivar currency will likely badly dent 2015 earnings at a swath of major US companies.
The decision, announced late on Thursday, would almost wipe out the $7.1 billion of Venezuelan monetary assets currently held on the books of 10 large American companies. At the new exchange rate of about 170 bolivars to the dollar, the value of those assets would drop by 93 percent to just $421 million, according to a Reuters analysis of regulatory filings.
Currently those assets are valued based on the main official rate of 6.3 bolivars to the dollar, or a second rate at 12 bolivars. However, the Venezuelan authorities only allow a limited amount of business to be done at those rates as the country suffers from a shortage of available dollars.
Some companies, such as diapers and tissue maker Kimberly-Clark Corp, had recently taken big charges after valuing their assets at a third exchange rate of about 50 bolivars to the dollar, rather than the 6 or 12.
However, that part of the system has now been replaced with the new free-floating rate, which was last quoted on Friday (even weaker than 170 on Thursday). That puts even the companies who had started to use 50 in a position where they may have to take another hit. The move represents an effective devaluation of more than 70 percent.
The currency move is part of President Nicolas Maduro's efforts to shore up the OPEC (Organization of the Petroleum Exporting Countries) member's coffers amid tumbling crude oil prices, an annual inflation rate of around 64 percent, and a shortage of many goods in the shops.
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