AT&T may take $1.1 billion charge on DirecTV's Venezuela assets

A man walks past the AT&T store in New York's Times Square, June 17, 2015. REUTERS/Brendan McDermid

(Reuters) - AT&T Inc may take a charge estimated at $1.1 billion related to DirecTV’s Venezuela assets in what is the latest U.S. company to confront the South American country’s currency woes.

The plunging value of Venezuela’s currency cut nearly $3 billion in profit at U.S. blue-chip companies during the second quarter and prompted Procter & Gamble Co to remove its operations in the South American country from its consolidated financial reports.

On Friday, AT&T said it is evaluating whether to use a less preferential currency exchange rate to value more than $1.1 billion in DirecTV assets in Venezuela. AT&T’s disclosure with the U.S. Securities and Exchange Commission was missed by much of the market. AT&T on Tuesday declined to comment on the filing.

In July, AT&T completed its $48.5 billion merger with DirecTV to become the largest U.S. pay-TV company. AT&T has said previously that the primary value of the deal is in DirecTV’s U.S. business.

The value of DirecTV’s $1.1 billion in Venezuelan assets is currently based on an exchange rate of 12 Venezuelan bolivars per U.S. dollar. AT&T said it may value the assets at the so-called Simadi exchange rate of about 200 bolivars per U.S. dollar, according to the SEC filing. Revaluing those assets at the less preferential Simadi rate would erase nearly all of the value of those Venezuelan assets, AT&T said.

“If AT&T changes to the Simadi exchange rate, it will have a negative impact on reported revenues, operating income and the fair value of our investment in the Venezuelan subsidiary,” the company said in the SEC filing.

Venezuela introduced the Simadi rate in February as part of a currency devaluation. With slumping crude oil prices and debt payments coming due this year, the Venezuelan government has fewer U.S. dollar reserves available to meet the private sector’s demands.

As a result, U.S. corporations say they are having a harder time obtaining dollars from operations in the country than any time since currency controls were first implemented in 2003.

In the first quarter of 2015, DirecTV’s Venezuela operations generated $200 million in revenue and operating profit before depreciation and amortization of $75 million. Had DirecTV used the Simadi rate for that quarter, those operations would have reported an operating loss, AT&T said in the filing.

Reporting By Tim McLaughlin; Editing by Chizu Nomiyama and Alan Crosby