Exit is not an option. That’s the consensus of a recent webinar on managing treasury in Venezuela conducted by The NeuGroup. Participants of the webinar, including members of The NeuGroup’s Treasurers’ Group of Thirty as well as the Group of Thirty 2 and 3, concluded that despite the current challenges and the expectation of continued regulatory pressure in the region, they intend to be in Venezuela for the long-haul. To be sure, many have implemented strategies to restrict growth in certain areas, but no real imminent exit strategy is in play; but they are not pulling out anytime soon.
Here are some other takeaways from the webinar:
No hard assets. Many on the call said they have evaluated the possibility of purchasing hard assets, but have deferred the decision because of the complexity of the transaction. One member was able to complete a real estate purchase, a facility in the region, but agreed with others that it can be a very complicated and drawn out process.
Accounting rate stays at 6.30. On January 23, rather than announce devaluation, Venezuelan FX rules were changed such that travelers, e‐shoppers, some importers and airlines, among others, were no longer eligible to purchase dollars at the official 6.30 rate, but would instead need to buy on the Sicad weekly auctions. Members in the webinar agreed that the 6.30 rate was still being used for accounting purposes. Only one member was using the 11.80 rate because of a special ruling specific to airlines. Hyperinflationary accounting was being used by everyone.
Spread the cash. Members were in agreement that managing the cash in-country is challenging because of internal policies that restrict the amount of cash that can be invested with any one particular bank. Most said that they are spreading the cash around to a roster of 2-5 banks and may soon bump up against internal limits requiring them to seek exception approval or add more banks to the mix. There is hesitation to add banks because of the growing risk in the region.
No local partners. Only one member described a local partnership that they have used to help facilitate the conversion of VEF to USD, with the partnership being very small and extremely high maintenance. Other members confirmed that they are not using a local partner and have no future plans to do so.
Impact on local earnings. The question was asked if members have considered a strategy to deal with the ongoing negative impact on local statutory books that a continued devaluation will cause. At some point the local entity may be rendered insolvent which will prohibit them from continuing business with government entities. This circular issue adds significant pressure for the parent entity to either send additional equity or forgive certain intercompany balances or royalties, depending on each individual case. Everyone agreed they were watching this situation closely, but no one had yet made a final decision on how best to move forward.
Overdue CADVI payables. Members discussed preliminary market chatter that was making its way through the market about the possibility of CADVI doing an escrowed financing that might help clear some of the $10-$15bn outstanding payables. No confirmed details were available, but it was rumored that the program would mandate a discounted payout at a further devalued rate. We will follow this development as more information unfolds.