Listing Of Brazilian Telecom Spinoffs May Confuse Some Investors
Dow Jones Online News, Friday, November 13, 1998 at 19:06
By Margarita Palatnik, Staff Reporter
NEW YORK -(Dow Jones)- The planned New York listing on Monday of 12
Brazilian telecommunications companies spun off from Telecomunicacoes
Brasileiras SA still has some investors bewildered.
Some holders of Telebras American depositary receipts (TBR) are still
unsure what they'll own after Monday.
The Bank of New York, the depositary agent for Telebras, Friday said
that the 12 companies will begin trading Monday on a "when issued"
basis. TBR will go ex-spinoffs on Nov. 18, the day after the
distribution, but will continue to trade until the company is
liquidated.
Another source of confusion is the distribution itself. Telebras
won't distribute odd lots, or fractional ADRs, which will instead be
cashed out. In the conversion schedule, only three companies are on a
one-to-one ratio with TBR, while the remaining eight are converted on a
fractional basis.
For example, an investor holding one Telebras ADR would get one ADR
of Embratel Participacoes SA (EMT), but would receive cash instead of
the 0.02 ADRs due of Tele Leste Celular Participacoes SA (TBE).
Telebras options will be settled with ADRs of the new spinoffs, the
Options Clearing Corporation said Friday.
OCC vice president John Peplinski said that the deliverables for a
Telebras option will include 12 new ADRs, plus the TBR stub and a small
cash settlement in lieu of a fractional ADR.
Investors who don't want a dozen ADRs have two options: HOLDRs (TBH)
are a basket security that represents ADRs of Telebras. RTBs are another
ADR instrument that represents a Telebras basket security traded
locally.
Fund managers consulted Friday welcomed the NYSE listing, which comes
almost two months after the 12 telecoms started trading on the Sao Paulo
stock exchange.
BEA Associates fund manager Guillermo MacLean said the New York
trading would deepen the market in the individual companies. He added
that HOLDRs are still "extremely attractive."
Robert Salvy, who manages about $2 billion in Latin American assets
for Shroder Capital Management International agreed. "We'll be able to
choose the fastest growing of the receipts," Salvy said. "And it should
mean greater liquidity."
Deutsche Bank Securities advised its clients to swap Telebras ADRs
for a basket security until liquidity transfers to the individual
stocks. Based on the experience in Brazil, Deutsche Bank strategist Jane
Heap said, the transfer will be gradual.
Heap said that holding the HOLDRs or RTBs could avert potential
increases in transaction costs. She noted that derivatives available for
HOLDRs may not be available for all individual companies.
The Chicago Board Options Exchange said Wednesday it would list
options on the six most liquid spinoffs on Nov. 18.
Telebras was privatized July 29 into 12 different companies. The new
firms started trading in Brazil on Sept. 21.
Brazil's privatization of the 12 operating units of Telebras was the
largest such sale in Latin American history. Prices in the July auction
topped the government's minimum price of $11.51 billion by 64%.
MCI Communications Corp., Telefonica S.A. of Spain, and Portugal
Telecom S.A. came up big winners in the sale of controlling stakes in
units spun off from Telebras.
-By Margarita Palatnik; 201-938-2226;
margarita.palatnik@cor.dowjones.com
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