FOCUS-Telmex bond issue rocks Mexican, US markets
Reuters, Thursday, June 03, 1999 at 16:49
By Fiona Ortiz
MEXICO CITY, June 3 (Reuters) - Mexican telecommunications
monolith Telefonos de Mexico (MEX:TELMEXL)(NYSE:TMX) said Thursday
it would issue $750 million in five-year convertible senior
debentures in a deal so widely anticipated that it forced a
two-hour trading halt in Telmex shares in Mexico and New York.
Telmex, the heaviest weighted issue on Mexico's stock
exchange and one of the most-traded foreign stocks in New York,
could use income from the bonds to pay off higher-interest debt
or to continue an acquisition spree, industry analysts said on
Thursday.
Word leaked into the market that Telmex could be issuing a
major bond, forcing securities authorities to stop trade to
avoid speculative deals.
Once some details were released and Telmex trading resumed,
share prices sank amid investor concern that the debt issue,
which can be converted into the company's shares, would dilute
the current share value.
Some industry analysts said Telmex might use the cash to do
some more shopping.
"I do believe Telmex has clearly indicated to the market
that they are looking at assets. It's sort of an opportunistic,
with a slight bent toward strategic, move," said Zane Manekia,
an analyst with Warburg Dillon Read in New York.
Telmex did not give details on the amount of the issue or
on the rates.
The company said it was filing a shelf registration
statement with the U.S. Securities and Exchange Commission for
public offerings of up to $1.25 billion of debt securities. A
shelf registration serves notice that Telmex may issue up to
that amount of debt in the next two years.
In a conference call with analysts, Patrick Grenham of
Salomon Smith Barney, which is co-leading the issue along with
J.P. Morgan, said $750 million of convertible bonds were
currently planned, with a coupon range of 4.0 percent to 4.25
percent and a conversion premium range of 23 percent to 25
percent over the current common stock price.
Market sources told Reuters the convertible bond could be
priced Thursday night and launched on Friday.
New York and Mexican markets halted Telmex trading for
about two hours on Thursday morning, awaiting news on the
bonds.
After trading resumed, the company's shares on the Mexican
bourse (MEX:TELMEXL) dropped as much as 3.5 percent and were off
2.6 percent to 37.35 pesos at midafternoon.
The company's American Depositary Receipts (NYSE:TMX) bottomed
out at $76 before recovering to $76.69, down $2.25 for the day,
late in the session.
Analysts said the stock could trade down for a few days and
said the convertible issue was a sign that the company felt its
stock was fully valued.
"The company itself believes shares will be valued at these
levels. You don't issue a straight convertible because you felt
like it, but because you feel your valuation has reached
optimum. Those $110 price targets out there may not be
reached," Manekia said.
But another analyst, who asked not to be named, was more
optimistic on future share prices. He said the convertibility
was very attractive "if you believe in Telmex like we do. In
the future you should be able to get a competitive total
return."
Manekia said that the company has not pledged to use the
funds to pay off debt, and investment in assets would be more
interesting given that the company has always managed to secure
attractive interest rates on debt.
"They could use the proceeds to invest in companies that
will yield returns that will be substantially higher than the
interest they are paying on existing debt," Manekia said. "If
you were paying 7.5 percent on debt and an investment could
yield 35 percent, where would you put your money?"
Manekia said there could be attractive assets up for sale
this year in South America, specifically Colombia and Brazil.
In early May Telmex and SBC Communications Inc. (NYSE:SBC), a
U.S. Baby Bell, agreed to buy Cellular Communications of Puerto
Rico Inc. (NASDAQ:CLRP). Last week Telmex said it would invest up to
$100 million in Williams Cos. Inc.'s (NYSE:WMB) Williams
Communications Group.
Carlos Slim, the majority shareholder in Telmex, has also
made other recent acquisitions, including using his Inbursa
bank to buy a 24 percent stake in the holding company of Grupo
Televisa (MEX:TLEVISACPO), the broadcaster that commands around
75 percent of Mexico's TV-viewing audience.
Telmex has a manageable debt to equity ratio in the low
20s, and analysts said the company could go up to 40 percent or
more without market repercussions, if it were growing.
mexicocity.newsroom@reuters.com))
Copyright 1999, Reuters News Service
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