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Strategies & Market Trends : Telebras (TBH) & Brazil -- Ignore unavailable to you. Want to Upgrade?

To: Steve Fancy who wrote (1247)	3/19/1998 2:41:00 PM
From: Steve Fancy	Respond to of 22640

Brazil shrs seen soft at open, up later on Wall St SAO PAULO, March 19 (Reuters) - Brazilian shares were seen opening soft Thursday on light profit-taking but were likely to resume upward momentum later on Wall Street's startling climb and a favorable local economic outlook, brokers said. <snip> ''The market is up 12.5 percent this month so we may see some profit-taking at the start,'' said a trader at local Crefisul brokerage. ''But the trend should be up again today. The scenario is positive,'' he added. biz.yahoo.com

To: Steve Fancy who wrote (1247)	3/19/1998 2:44:00 PM
From: Steve Fancy	Respond to of 22640

NTERVIEW-Eletropaulo (SAO:ELP) draws huge interest Reuters, Wednesday, March 18, 1998 at 22:45 By Fatima Cristina SAO PAULO, March 18 (Reuters) - The sale of Sao Paulo utility Eletropaulo is drawing strong investor interest, driven by rising demand and growth prospects for the power sector in Brazil's richest state, a top company official said. Eletropaulo President Eduardo Bernini said a number of local and foreign investors were lining up for the privatization auction of the utility's distribution and transmission assets on April 15. "We have noticed that all big players have shown interest," he told Reuters in a telephone interview earlier this week. Major energy firms such as U.S. Houston Industries (NYSE:HOU), Enron Corp (NYSE:ENE), GPU Inc (NYSE:GPU), Spain's Endesa (MADRID:ELE), Chile's Chilectra (SAN:CHE), and Argentina's Perez Companc (BUE:PER) together with Britain's National Grid Group Plc (ISEL:NGG) have already visited Eletropaulo's so-called "data room" to view the company's records, he said. Privatized power firm Light (SAO:LIG), controlled by a consortium led by Houston, U.S. AES Corp (NYSE:AES) and France's EDF, and local VBC group, which last year bought Sao Paulo state's utility CPFL (SAO:PAL), also have analyzed Eletropaulo's books, he added. More companies are expected to visit the data room which will be open until April 6. Eletropaulo, which distributes electricity to Sao Paulo city and its industrial suburbs, has been split into four units: two distributors -- Metropolitana and Bandeirante -- a transmission company, Empresa Paulista de Transmissao de Energia (EPTE), and a small generator. The Sao Paulo state government, Eletropaulo's majority shareholder, will sell a 74.88 percent voting stake in each distribution unit for a total base price of 3.04 billion reais. Metropolitana, the choicest asset covering Sao Paulo city and serving 4.2 million customers, will be sold for at least 2.026 billion reais. The minimum price for Bandeirante, covering non-metropolitan Sao Paulo with two million customers, was set at 1.014 billion reais. The state also has set a minimum price of 148.85 million reais for a 36.69 percent voting stake in the transmission unit. The generator will remain 100 percent controlled by the state. The attractiveness of the new companies is simple, Bernini said. The new owners of Eletropaulo's spin-offs will belong to a market that promises to grow steadily over the next 10 years, Bernini said. He estimated consumption to grow an average 2.5-3.0 percent a year in the area served by Metropolitana and an average 4.0-4.5 percent a year in the region covered by Bandeirante over the next decade. Both distributors will be sold at closed-envelope auctions at 0900 local time/1200 GMT, while the shares in the transmission firm will be offered at 1800 local time/2100 GMT. Bernini said the state decided to sell its shares in EPTE too late in the day to give winners of the distribution assets time to consider buying the stake in the transmission firm. "The transmission services are practically exclusively dedicated to the distributors. That could be an interesting investment for buyers of the distribution spin-offs," he said. The Eletropaulo chief said the company's privatization process is moving smoothly and no delays should be expected. Last week, the state published the bid specifications for the sale. Bernini also dismissed fears that recent blackouts could take the shine off Eletropaulo's sell-off. Unlike privatized Light (SAO:LIG) and Cerj (SAO:CBE) in neighboring Rio de Janeiro, which have been plagued by power cuts due to a surge in demand, Eletropaulo's blackouts were isolated and caused by strong rains and winds that hit the city in early March, he said. 2485412,fatima.santos@reuters.com)) Copyright 1998, Reuters News Service

To: Steve Fancy who wrote (1247)	3/19/1998 2:48:00 PM
From: Steve Fancy	Respond to of 22640

Bechtel, local firm plan Brazil telecom venture SAO PAULO, March 19 (Reuters) - U.S. group Bechtel Corp. and local firm Metodo Engenharia plan to form a joint-venture to carve out for themselves a slice of Brazil's promising telecommunications infrastructure market, officials said Tuesday. biz.yahoo.com

To: Steve Fancy who wrote (1247)	3/19/1998 6:43:00 PM
From: Doug Chin	Read Replies (2) \| Respond to of 22640

Steve, I have also been trying to wrap my mind around this monster and came up with SEVERAL valuations, but have nagging issues. To arrive at $300+ I tried to value portions of TBR based on earnings and P/E. Lets look at another valuation method... One caveat (and it bugs me) with what I say is that the Govt has 50.1% voting control through preferred shares yet only owns 23% of the equity. So what exactly does this mean? Normally if someone is taking over another company and they pay $X/sh, to someone for their shares this means your share is also worth $X. But with TBR we have two classes. Someone may pay the govt $400/sh to get control yet the rest of the 77% of the common equity may be worth much less. A higher premium might be paid for the preferred shares. Ok sorry for muddying the water...lets try to get back out of the woods. Does anyone know if there is any economic difference in ownership between a preferred and a common share? ie. Does the preferred and common shareholder get the same dividend? If we can answer this question we are one HUGE step closer in valueing TBR. (maybe I should read the annual report over in more detail...) One way to value a company is by the present value of future cash flows, ie. dividends (eg. using a dividend discount model). If the preferred and common shareholder get the same dividend then this implies the shares should have the same economic value and should track closely in price due to arbitrage and possibilities for risk free returns. (Assuming you don't care about control...short the overvalued one and buy the undervalued one.) If we assume that a TBR common and a preferred share have the same economic value, we know that if the govt gets $300/sh, our share should also be worth approximately $300. So lets try another valuation method I used. It has been reported that the govt expects to get 20B for TBR. This is probably in the right ball park. We also know that a consortium led by Solomon Smith Barney won the contract for privatizing TBR and they bid something like .00069 of what the govt gets, which translates into less than $15M. This doesn't sound like much for the amount of work they are going to do (laywers, accountants, analysts, etc....). All I can say is that Solomon must be anticipating a very large sale price. Anyhow here are some scenarios: 1) Lets say the govt gets 20B for 23% of the equity (assuming a preferred share and common have the same economic interest - you better sit down because the number is large). This means that 100% is worth 87B and one share is worth over $400. (Wow!! I'll be mortgage free with that and you can meet me on a beach in Rio). 2) Lets say that instead the govt is actually getting 20B for the 50% voting rights. This implies a total value of 40B and a price of around $200. (I'll still be happy but I'll still have the mortgage). This is a pretty large spread in estimated price, so we really need to know if a preferred share = a common share for economic purposes. I want to emphasize this again. Does anyone know if a preffered share = a common share for economic purposes? Steve, Regarding the timeframe for my calculations, they are target prices for whenever the privitization happens - end of July according the govt, personally I think it will be delayed a couple of months especially with the world cup taking up a month (Imagine the Superbowl only every 4th year).