‘Trapped’ funds in Venezuela prompt Telefonica spending spree

Telefonica’s financial troubles continue in Latin America with a double dose of misfortune. Dividends from the Spanish group’s Venezuelan operations – worth around US$3 billion, and accrued over seven years – have reportedly lost almost US$1.4 billion of their value.

The situation was likely aggravated in February, when the country’s currency decreased in value. Irrespective of this, Telefonica has been hamstrung by Venezuelan law, which forbids foreign firms from repatriating cash from dividends unless the total amount is greater than $12 billion.

Stuck with an unmoveable fund, Telefonica is reportedly planning to increase capital spending massively for the Venezuelan operation as a means of guarding against further devaluation. The group reportedly plans to pour BOB3.9 billion ($365 million) into the unit this year, with a further BOB600 million to be spent on 4G licences.

The ‘trapped’ money is particularly frustrating for Telefonica as it is looking to reduce its net debt - EUR51.3 billion at the end of Q4 2012 – to lower than EUR47 billion ($62 billion) by the end of the year. The group is reportedly looking to sell some of its operation in Colombia as a means of generating funds.

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