The financial crisis in Argentina will affect the results of Makhteshim Agan, which is due to post a $15 million to $22 million expense because of the diminished value of its business associates in the country, and the impact of the crisis on their debt repayment ability.
The company is saying that the impending crisis led it to reduce its activity in Argentina, to implement accelerated debt collection measures and to lower its trade volume there, which constitutes 2.5% of its activity.
Ilan Leviteh, CEO of Makhteshim-Agan, told TheMarker that "last Monday the Argentinean congress decided to allow the president to devaluate the peso, after ten years in which it was linked to the U.S. dollar, by law. We viewed his move, and the devaluation that followed, as significant. Though the instructions on the devaluation are not entirely clear, we preferred to make a clear announcement of our intentions. Our estimates are very conservative, but it is better than no estimates at all."
Regarding the company's continued activity in Argentina, Leviteh said, "we basically believe we will continue to do business in Argentina, though in a more limited format. We will do so because of the size of the market there, which stood at $800 million three years ago, and has now dropped to $500 million. We believe it will climb back up to $600 million."
As for when the expense will be reported, Leviteh said "the company has not yet decided whether it would post this expense in Q4 2001. It is more likely the expense will be posted in Q1 2002, because the devaluation is taking place as we speak."
Makhteshim Agan's exposure to South American exchange rates has hurt it before, during the financial crisis in Brazil several years back.
Eli Assraf, CFO of Makhteshim, told TheMarker that in regards to the company's activity in Brazil "the company was well aware of what is happening in the country. The Brazilian currency was devalued greatly in 2001, and though since the end of October it reached 2.3 real to the dollar, it has since late in December weakened to 2.4. It is likely that Brazil has already suffered the impact of the Argentinean events. In any case, we continue to protect ourselves. Our business in Brazil comes to a little over $25 million, 80% of which is protected."
Assraf added that "luckily for us, the agricultural season is going to end in a week or two, and we should have enough time to study the new situation in Argentina and to get ready for the next season."
Assraf concluded with the statement "all in all, Q4 2001 was a rather reasonable quarter."