The degree of internationalisation achieved by the Spanish companies deserves some admiration. A good number of Spanish corporations have now gained a global market share they could only dream about twenty years ago, and thanks to which it has been possible for them to fight back against the depression of the domestic demand in Spain during the last five years.
But most of this expansion has taken place in Latin American markets, where countries that respect the law and remain politically stable work side by side with others where the opposite is true. Telefonica’s experience probably is a clear evidence of the rights and wrongs of investing in Latin America.
The devaluation of the currency in Venezuela in February, and the nationalisation threats that Spanish companies face in some countries of the region, are elements Spanish businesses need reconsider. The new price of the Venezuelan bolivar has made Telefonica lose €438 million in results before taxes, for instance: the amount isn’t exactly negligible for a group like Telefonica, which is involved in a difficult programme to reduce financial risk.
Last year, Telefonica basically focused on cutting down its risks by introducing extraordinary measures like asset sales and dividend cancellation. But indebtedness rates have fallen and, even though painful for shareholders, these are temporary decisions.
The markets should soon be reflecting in their analysis a more benign perception of Telefonica’s risks. Downgrades have definitely been avoided.