Brink's hit spotlights Venezuela currency woes

CARACAS (Reuters) - Security company Brink's Co's (BCO.N) announcement that its Venezuelan currency maneuvers would cut profits has spotlighted the headaches firms face to repatriate earnings from the country using a legally murky exchange market.

Brink's said this week it would take a $23 million hit by changing its Venezuelan bolivar profits into dollars in the euphemistically-named "parallel market" where the greenback is easily twice as expensive to buy than at the state's official rate.

Some foreign companies belonging to the Venezuelan American Chamber of Commerce have been waiting up to two to three years to get official rate dollars to repatriate about $2 billion, the chamber's head said this month.

Concerns also about the fate of business under the socialist government of President Hugo Chavez, help to underpin the unofficial currency market, where companies have to turn to get greenbacks if they cannot get official rate dollars.

Venezuela has the discretion to grant official rate dollars at 2.15 bolivars to businesses it deems a priority, leaving others seeking U.S. currency at a tolerated, though illegal, parallel rate currently at around 5.9 bolivars.

The 2.15 rate has been fixed since 2005, under capital controls imposed two years before, even though inflation has galloped at the highest rate in Latin America.

Few executives want to go on record, but analysts and corporate sources say an increasing number of foreign companies are -- like Brink's -- losing patience with the wait for official dollars.

Instead, they are taking earnings out at the more costly rate, a multi-step process that sometimes involves buying dollar-denominated bonds with bolivars in what exchange houses call a "permutation dollar."

Earlier this month, BMO Capital Markets cut ratings on Colgate-Palmolive Co (CL.N), Avon Products Inc (AVP.N) and Kimberly-Clark Corp (KMB.N) , mentioning the impact of the bolivar market.

In addition to concerns that Cuba-ally Chavez's nationalization drive could touch new sectors, foreign companies in Venezuela are often prevented from repatriating profits at the official rate, New York-based BMO analyst Connie Maneaty wrote.

OIL SLUMP HIT DOLLAR SUPPLY

Aggravating the official dollar shortage was the collapse in oil prices from its record high in July last year. Crude accounts for about 94 percent of export revenue for OPEC member Venezuela.

Government-allotted official rate dollars slumped from a recent peak of $201.3 million per day in the third quarter of 2008 to $97.4 million daily in the second quarter of 2009, with a slight bump up to $121.3 million daily in the third quarter, according to state foreign exchange administrator CADIVI.

The shortage of official rate currency was so severe in mid-2009 that General Motors GM.UL and the local assembler of Mitsubishi and Hyundai vehicles shut their plants for several months, citing inadequate official rate dollar allotments for key imported inputs.

While the government says it has recently increased dollar supplies to the auto industry, getting greenbacks at the official rate for profit remittances remains a stiff challenge for many companies, though there are exceptions.

"You have to be an FOC (friend of Chavez) to be assured official rate dollars to send profits home," said Russ Dallen, BBO Financial Market's capital markets chief in Caracas. "The number of official dollars to go around fell considerably when oil prices plummeted last year."

Companies whose home governments are friendly with Chavez have a greater chance of drawing coveted official rate dollars to send dividends and profits home, such as Spain's Banco Santander (SAN.MC), when it was selling a local unit to the state, he said.

CORPORATE JITTERS

The scale of profit remittances in the parallel market is difficult to gauge as foreign companies are jittery about legal jeopardy. Parallel market total trade volumes are a guess, with one market source estimating it fluctuates between $30 million and $70 million daily.

Venezuelan law bans foreign exchange operations in which the central bank is absent, yet the government openly expresses its aim to strengthen the parallel bolivar, even issuing bonds purchasable in bolivars but payable in dollars.

"There is a fear of retribution by even mentioning sending profits and dividends home," said Goldman Sachs analyst Alberto Ramos. "This is a very sensitive issue because of the limited protection under the law in a country where the courts are susceptible to political pressure."

Even so, more foreign companies, including those in the consumer sector, are trying to divest and send profits home instead of reinvesting them in Venezuela as they did before to capitalize on a fast-growing market, he said.

Eurasia Group analyst Patrick Esteruelas said from New York that a large majority of foreign companies operating in Venezuela, particularly in communications and consumer goods, have had a difficult time repatriating dividends and profits because of the official dollar rationing.

"They are increasingly resorting to the parallel rate to send money out of the country," he said.

With a large middle class accustomed to U.S. products, Venezuela has been a disproportionately large market for U.S. firms given it only has 28 million people.

Venezuela accounts for 6 percent of sales at Colgate and 5 percent at Avon, BMO's Maneaty said. Procter & Gamble Co (PG.N), the world's largest maker of household products, derives a greater amount of sales from Venezuela than the other manufacturers, but those sales account for just about 3 percent of its total sales.

Brink's drew 11 percent of its revenues from Venezuela, where experts say soaring crime has made Caracas the most dangerous city in Latin America in terms of homicides outside drug-infested Ciudad Juarez, opposite El Paso, Texas.

(Reporting by Walker Simon; Editing by Tim Dobbyn)