NEW YORK-The recent privatization of Telecomunicaciones de Guatemala S.A., doing business as Telgua, was the largest such transaction in Central America to date and offers encouragement for similar plans contemplated in nearby Nicaragua and Honduras.
“Obviously, Telgua would be interested in reviewing these as opportunities and Telmex may be as well,” said Carlos Mendez-Penate, an attorney with Coudert Brothers, New York, legal adviser to the transaction.
Telmex, formally known as Telefonos de Mexico S.A. de C.V., signed a five-year agreement to operate Telgua under terms of the recent privatization sale to another business entity, Luca S.A.
“In the midst of the clean-up of the destruction from Hurricane Mitch, Guatemala has successfully closed a major privatization which will vastly improve the country’s infrastructure,” said Mendez-Penate.
“Furthermore, the successful completion of this privatization demonstrates that, despite the recession affecting many other emerging markets around the world, business is still moving forward in Central America.”
Telgua has a nationwide personal communications services license for fixed and mobile wireless telecommunications.
By year’s end, Telgua hopes to have 70,000 Code Division Multiple Access customers on its new network, which Nortel Networks supplied but did not finance. Telgua’s wireless competitor, Comcel, a private-sector cellular operator, has about 60,000 subscribers, Mendez-Penate said.
Telgua’s PCS network buildout centers on Guatemala City but will extend outward to surrounding areas, with plans for 200,000 customers within five years, he said. On the wireline side, Telgua hopes to double its 500,000 access lines within five years.
Fortunately, Guatemala’s telecommunications infrastructure largely was spared Hurricane Mitch’s wrath so that new capital raised can be used to expand services. There is a large, pent-up demand for telecommunications services in this country, which has a population of 11.2 million and a teledensity of just 4.5 lines per 100 people, Mendez-Penate said.
Another auspicious sign for Telgua, as well as other companies seeking financing for projects in developing markets, has come recently from the international capital markets, said Jose Ordonez, a director of Salomon Smith Barney, New York.
Salomon acted as adviser to Luca S.A., a consortium of private investors and financial institutions from Guatemala and Honduras, which was the sole bidder for the 95-percent stake of Telgua.
“Certainly, we are starting to see renewed (investor) appetite. The high-yield (debt) market for U.S. issuers has been quite active in recent weeks,” he said.
“In emerging markets, there have been a number of sovereign (country) debt issues, so we’re seeing, at last, positive trends for (telecommunications) operators for next year. Telgua will ultimately access the capital markets.”
The Luca consortium that now controls Telgua is led by Ricardo Bueso, a Guatemalan with diverse business interests in the country that are unrelated to telecommunications. Citing press reports, the U.S. Department of Commerce said Luca was formed in late 1996 to provide radio and telephone communications and “claims” financial backing from institutions including the Bank of America and Financiera de Inversiones (FINSA).
The remaining 5 percent of Telgua is owned by its employees and other Guatemalan investors in accordance with conditions set by the federal government for the privatization.
Telmex has entered into a strategic alliance with Luca that includes a management agreement to operate Telgua for five years and an option to buy 49 percent of Luca’s shares of Telgua.
Telmex did not supply capital to Luca for the Telgua purchase. However, Telmex did bid to buy Telgua for $520 million in December 1997, an offer the Guatemalan government rejected as too low.
Before closing on its Telgua acquisition in November, Luca was required to “have an operating agreement with an internationally recognized telecommunications carrier with a minimum of 500,000 lines,” Mendez-Penata said.
Besides Telmex, Luca executives also interviewed AT&T Corp., Deutsche Telekom, GTE Corp. and Telefonica de Espana, he said.
“Telgua has a very good operator in Telmex, a good operator in similar markets with low penetration and high pent-up demand,” Ordonez commented.
