NEW YORK-In Latin American countries, “where completion of a phone call is cause for celebration in some cases,” rising gross domestic product signals increasing financing demands for wireless communications infrastructure buildout.
“GDP and demographics look good; there is a correlation between GDP and telephone penetration,” added Antonio Garcia Adanez, associate director, SBC Warburg, division of Swiss Bank Corp., New York. “Especially in Latin America, cellular provides*…*a relatively low-cost alternative to wireline due to the poor condition and/or unavailability of wireline.”
Adanez said he expected cellular services to grow at the rate of about 40 percent annually through 2000 in Latin America. SBC estimates $18 million to $20 million a year will be needed for the next five-to-six years to upgrade networks and offer new services like personal communications services.
The total sums of money that will be needed for complete construction are even more significant, said Matthew J.K. Hickman, senior vice president of Lehman Brothers, New York. “The amounts of money envisaged as required to build networks are substantial; in Brazil alone, as much as $5 billion.”
At present, only two wireless services providers-Grupo Iusacell S.A. de C.V. of Mexico and Telefonica del Peru-are publicly traded companies. “More and more companies will use public equity as a key financing alternative,” Hickman said.
Moreover, he noted, “equity capital can be available even before cash flow is positive. Orange plc (of Great Britain) was taken public before it was cash positive and Iusacell raised equity capital during its buildout.”
While only a few Latin American telecommunications companies are publicly held, Latin America, excluding Central America, “lags slightly behind Asia but is slightly ahead of Europe (in terms of) privatization,” Adanez said.
Last year was a poor year for Latin American investment because stock purchasers were feeling the so-called Tequila hangover of Mexico’s peso devaluation, Hickman said.
“Investors’ perception of risk has risen dramatically since the Mexican peso devaluation,” said Rizwan Ali, managing director of Bear, Stearns & Co. Inc., New York. According to Ali, the premium demanded right before the peso devaluation was 200 basis points; right after, it was 1,400 basis points; today, it is between 550 and 600 basis points. A basis point equals .01 percent of yield.
“How we evaluate Latin American telecoms is a matter of art and science, to say the least,” he said.
