India eyes barter of medicines for Venezuela crude oil


Indian drug companies could recoup some of the financial losses incurred as Venezuela struggles to make foreign-currency payments and the value of its currency plummets--by participating in a barter plan that would swap medicines for crude oil.

Reuters reports that unnamed Indian government officials are taking a page out of similar barter deals for oil from Iran as sanctions crimped dollar trade for food commodities.

Under the proposal, oil import-dependent India would allow state-owned lender State Bank of India to arrange a transaction that would handle the sale of the crude oil and the proceeds to the drugmakers.

In the fourth- and first-quarter earnings calls of multinational drugmakers such as Merck ($MRK), Abbott Laboratories ($ABT), Roche ($RHHBY) and Pfizer ($PFE), the companies said they had sustained significant losses on products sold in Venezuela under a weaker bolívar currency.

The country has been struggling with hyperinflation and a sharp fall in the price of its main export earner, crude oil, in the past year.

For Merck alone, Rob David, executive vice president and chief financial officer, said on the first-quarter earnings call that the company took a hit of "approximately $240 million, reflecting the reduction of our operations in the country."

"As a reminder, we recorded $625 million of sales in Venezuela in 2015, which were more weighted to the first half of the year, so the year-over-year impact will be greatest in the first two quarters of this year," he said.

In the case of India, at least one drugmaker, Hyderabad-based Dr. Reddy's Laboratories ($RDY), said last week that it had to write off $65 million related to losses in Venezuela in the fourth quarter.

The humanitarian plight of drug shortages in Venezuela has been highlighted with some companies continuing to provide supplies for the time being. But the longer term outlook depends on a resolution to a political and economic crisis that has caused other shortages, including food.

"The situation in Venezuela is very precarious; … the government knows it needs to do something about the medicine shortage, that's why it is willing to discuss such a deal," Reuters reported, citing an unnamed Indian official who added that even partial payment would be a good start.

"At this point, even if our companies get back 5% or 10% of the payment they are owed, they would be satisfied."

Reuters said the timetable for a barter deal was uncertain and the first step is a "high level" meeting with Venezuela in the coming months.

A trade industry lobby group in India said it had also heard of the proposal, Reuters reported.

"The finance ministry has assured us that the government is fully committed to it, but it will take time," P. V. Appaji, director general of the Pharmaceutical Export Promotion Council of India, told the news wire. 

Data cited by Reuters show India's exports to Venezuela between April 2015 and February 2016 fell by nearly 50% to $125.5 million, with the majority of trade in medicines.

- here's the Reuters story