Dow Jones Business News
Clock Ticking For Mexican Wireless Operator Iusacell
Tuesday April 29, 2:12 pm ET
By Amy Guthrie, Of DOW JONES NEWSWIRES
MEXICO CITY (Dow Jones)--Mexican wireless communications operator Grupo Iusacell SA has managed to keep its New York Stock Exchange (News - Websites) listing.
Now the main challenge for the company is avoiding a default on its $815 million debt load this year.
Iusacell, owned by Verizon Communications and Vodafone Group PLC , has come up with some interesting product offerings as of late, including international text messaging and seamless service throughout North America.
Nonetheless, the company is in a bit of a financial bind. As of the end of the first quarter, Iusacell had $5 million in cash, hardly enough to make a $3 million interest payment due at the end of next month and a $25 million coupon payment on its 2006 bonds at the start of June.
The company acknowledged Tuesday that it may have to resort to some asset sales in order to make the June payment. The company is working with Morgan Stanley to analyze its debt options.
"We hope to make progress on that very quickly," Iusacell's chief financial officer, Russell Olson, told analysts during a conference call.
Technically the operator could also lapse into default in May, should its lenders not opt to extend their amendment on the company's ratio of debt to earnings before interest, taxes, depreciation and amortization, or EBITDA.
All of the company's debt is denominated in dollars, which contributed to a net loss of 694 million pesos ($1=MXN10.3250) for the first three months of the year due to a weaker Mexican peso. Foreign exchange losses totaled MXN280 million in the quarter.
"Iusacell's principal problem lies in its debt, high funding needs and weak cash position," Jose Luis Ramirez, an analyst with Mexico City-based brokerage IXE, said in a research note.
On the bright side, Iusacell shareholders have agreed to a 1 for 10 reverse stock split so that the company's American Depositary Shares can maintain their residence on the New York Stock Exchange.
Iusacell ADRs were trading up 4.4% to $0.47 Tuesday afternoon. Shares listed on the Big Board, however, are required to have a value of more than $1 each. The ratio change for Iusacell ADRs is expected to take place within the next 45 days.
Iusacell also hopes to soon clinch an agreement with Mexican wireless heavyweight America Movil SA's Telcel unit so that both companies' clients can exchange text messages.
Preliminary talks about technology upgrades and legal aspects of such compatibility have already been held, Iusacell said.
"We believe that this is something that is in the best interest for everybody in the industry to conclude, and that is the sentiment that we are seeing from the leadership in Telcel," said Iusacell chief executive Carlos Espinal.
"So we feel confident that this is something we will be able to achieve during the second quarter," he added.
Iusacell has already reached agreements on text messaging with other Mexican carriers, however, Telcel is key as it has more than 20 million customers, or close to 80% of the market.
In November alone, Telcel clients sent more than 100 million text messages. Some Mexican mobile users have even been migrating to Telcel from other brands for the sole purpose of sending short messages to their friends.
Iusacell, which ended March with 2 million subscribers, meanwhile, has come up with another concept to attract and retain customers. The operator launched seamless wireless service for North America during the first quarter that reduces roaming costs by 70%, to roughly $0.33 per minute.
More than 20% of the new subscribers Iusacell has signed on recently were attracted by the so-called Nafta product, which plays on the commercial ties strengthened by the North American Free Trade Agreement.
-By Amy Guthrie, Dow Jones Newswires; (5255) 5080-3453; amy.guthrie@dowjones.com |
