Brazil's Telesp, Petrobras Vie To Become
Stock Benchmark
By GERALDO SAMOR
Dow Jones Newswires
RIO DE JANEIRO -- For investors wanting a taste of the Brazilian equity
market, brokers have long had one name on the tip of their tongues:
Telebras.
The telecommunications holding is such a strong center of liquidity that at
times it looks more like a black hole, dragging into it 60% of the trading
volume on the Sao Paulo Stock Exchange.
But now that Telebras is privatized and its shares are about to be split in
12, market participants are scrambling to find out which stock will inherit
all that liquidity. In other words: how do you play Brazil from now on?
Some say there's nothing better to replace a telecom icon than another
telecom stock and point to Telesp Participacoes SA, a Telebras spinoff,
as its natural successor.
Others argue that the market's next liquidity move will be more like an oil
gush, as Brazil's state-run petroleum company Petroleo Brasileiro SA,
known as Petrobras (E.PTB), draws more attention as the sector opens to
private competition.
At least one, somewhat nostalgic, consensus emerges from a poll of
market observers.
"There will never be anything quite like Telebras, a paper with such high
liquidity that you could buy at minimum spreads and build large positions
on," said Alexandre Schwartsman, head of research at Credit Agricole
Indosuez in Sao Paulo. "If you want to make plays in Brazil from now on,
you'll have to use other instruments."
Telesp Participacoes is the company that owns a controlling stake in
Telecomunicacoes de Sao Paulo SA, known as Telesp (E.TSP). Shares
of Telesp Participacoes - as well as of the other 11 Telebras spinoffs - are
waiting for clearance from the U.S. Securities & Exchange Commission to
begin trading.
In its favor, Telesp Participacoes has size. The company, which was
bought by a consortium led by Spain's Telefonica SA (TEF), represents
about a fifth of the old Telebras system.
Considering that Telebras trades a daily average of $325 million, Telesp
Participacoes would have a projected turnover of $65 million per day,
said Schwartsman. By comparison, Petrobras has traded $38 million per
session over the last year.
Moreover, Telesp Participacoes' free float will equal 80% of total capital.
Petrobras has 37.9% of its capital on free float, but a lot of that float isn't
quite "free" as large institutional investors maintain the shares in their
long-term portfolios, without much rotation.
Still, the oil giant has its fans. Ten out of ten major investment banks have
"buy" recommendations on Petrobras.
"Petrobras has more liquidity - and charm - than Telesp, and it has good
things happening in its future, such as partnerships, receiving what the
government owes it, and eventually it will be privatized," said Gilberto
Zalfa, head of equities at Agenda Corretora. "It (the benchmark) could be
either one, but I'm betting on Petrobras."
The truth lies somewhere in the middle, as both stocks stand to gain from
the disappearance of Telebras, several analysts said.
Another rare market consensus is that liquidity will be determined by a
strong options market.
"When you have an active options market, the cash market becomes more
liquid because you allow more investor strategies," said Ricardo Nogueira,
an official with the Rio de Janeiro Stock Exchange.
Despite its negligible, 5% share of Brazil's equity trading volume, the Rio
de Janeiro exchange has a 15-year tradition in Petrobras options. The
exchange recently had 16 series on Petrobras call options, compared to
six on Telecomunicacoes de Sao Paulo SA.
"In the beginning, (the liquid one) will be Telesp, because everyone who
holds Telebras will hold Telesp," Nogueira said. "Then it's going to depend
on investors, on whether they sell the other 11 spinoffs to buy more Telesp
or sell Telesp to get into the cellular companies."
At the center of that choice is the market's discussion as to which segment
of the telecommunications industry - fixed-line companies or
cellular-phone providers - will be most profitable over the long run.
-By Geraldo Samor; 55-21-580-9394; gsamor@ap.org
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