Smurfit Kappa Venezuela situation deteriorates

Ireland-based paper manufacturer and recycler Smurfit Kappa Group plc (SKG) has been unable to operate its own plant and equipment in Venezuela since late August 2018, when that nation’s government issued an “occupation order” for its Smurfit Kappa Carton de Venezuela (SKCV) subsidiary.

That order was issued around the same time as the Venezuelan government announced it intended to nationalize the entire scrap recycling industry within the country.

An early November Wall Street Journal article indicates some of the 1,600 employees of the subsidiary, although off the payroll since September, continue to show up at the plant in an effort to protect the plant and equipment in case operations ever restart.

The Nov. 7 article quotes one of the employees as saying, “Help, we’re desperate,” and, “We’re so scared because we now know that all the government does is destroy everything, every business.”

The article indicates that when finance, sales and marketing staff abandoned the Smurfit Kappa subsidiary after the government seizure, it did not take long before operations wound down. One worker is quoted as saying, “We know how to move the lumber from here to the plants. What do we know about finances and marketing?”

In late September, SKG announced that “due to the continuing actions and interference of the government of Venezuela, SKG is no longer able to exercise control over the business of Smurfit Kappa Carton de Venezuela.”

Added the firm at that time, “SKCV has been providing goods and services to its customers in Venezuela for almost 65 years, giving employment today to almost 1,600 direct employees and generating more employment indirectly.”

Following receipt of the Venezuelan government occupation order, SKG says it became “subject to government interference, including through the arbitrary harassment of its employees by the Directorate General of Military Counterintelligence (DGCIM) through unauthorized visits [that had] the effect of intimidating the company’s workforce.” That included the arrest of two SKG employees.

The papermaker indicated that “SKG and SKCV reserve all of their rights with regard to the Venezuelan government’s actions and any subsequent state measures under Venezuelan and international law including, without limitation, the right to initiate international arbitration proceedings to protect the interests of its stakeholders and seek compensation for Venezuela’s unlawful measures.”

In the meantime, SKG engaged in a third quarter 2018 write-down of net assets of approximately €60 million ($67.7 million) related to the SKCV operations, which the company says represents “less than 1 percent of the group’s EBITDA (earnings before interest, taxes, depreciation and amortization) in the first six months of 2018.”