90107112 mw2 compania de telefonos de chile (1)

8/10/2019 90107112 MW2 Compania de Telefonos de Chile (1)

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Muir Woods 2 Ashish Chugh

Holly Cheung

Gareth Lloyd-Owen

Maja Trolle

Moneer Kattan

Compaia deTelfonos de Chile(CTC)


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There is One Key Issue

Muir Woods Group 2 2

Booming telecoms market but Chiles infrastructure is poor

Need substantial capital to expand

Alan Bond (owner) has had to sell his 365.5 million shares

CTC is in a difficult financial situation

Unstable Government

Situation

Complication

Question

Garcia must devise a strategy soon

Investors are uncertain about CTC

Many financial complications exist

It is unclear what competitors are going to do

Can CTC Finance the Expansion?

Can CTC Finance the Expansion?

Compaia de Telfonos de Chile


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Our Analysis Work Flow


Module Activities Assigned 1 hr 2hr 3hr 4hr

1 Identify domestic barriers Gaz1 Investigate domestic financing options Gaz

1 Size of the market? Holly

1 Capital requirements? Holly

1 Population demographics Holly

2 Identify investor issues (fears) Ashish2 Foreign view of Chile (including history) Ashish

2 Forecasts on investments Ashish

2 Implications of funding the project internationally Gaz

3 Government history / ITT Maja

3 Governments ambition (what do they want?) Maja3 GDP growth Moneer

3 Telecommunication growth rate Moneer

3 Technological advancements (infrastructure etc.) Moneer

3 Country benchmarking Moneer


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The Financial Solution is to Seek InternationalFunding Using ADRs

CTCCan

Finance The Expansion:


Chile ISStable Enough to See Through theExpansion

The Domestic Market CantSupport theExpansion

CTC ISAn Attractive Proposition forForeign Investors


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1.0 Chile ISStable Enough to See Through theExpansion


1.1The Chilean Government DOESSupportCTC

1.2Chile DOESNeed This Level of Expansion


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The Government will have to re-nationalizeCTC if the financing fails

Over 300,000 pending telephone lines

Infrastructure falling behind other countries

Negative effect on international investmentscould stagnate economic growth

1.1 The Chilean Government DOESSupportCTC



Chiles GDP and populationare growing

Pending phone applications are increasing by9.05% per year

Chile is ranked 11thof 21 Latin American

countries

1.2 Chile DOESNeed This Level of Expansion


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2.0 Unfortunately, The Domestic Market ISUnable to Support the Expansion


2.1The domestic barriers aretoo difficult toovercome

2.2The domestic market istoo small to fund theexpansion



Domestic Financing Possibilities:

Local Banks

Domestic pension funds

Chilean stock market

Cutting the dividend

2.1 The domestic barriers aretoo difficult toovercome


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Why is it more feasible to raise fundoverseas?

More developed markets

Longer trading hours

Higher daily transactions


2.2 The domestic market istoo small to fundthe expansion

Chilean citizens couldnt afford to invest

Average household income = US $235

Disposable income = 5.38%

Paycheck only covers phone

Capital requirements

Data provided from the case

97,267 Mil. Peso = approximately $ 326 Mil.


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3.0 CTC CanAttract International Investors


3.1Suitable foreign financing options doexist

3.2Foreign investment willavoid affecting thedomestic market

3.3 They canconvince investors into emergingmarkets


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Three options for foreign investment exist

Directly into the local stock market

Exchange Traded Funds (ETFs)

American Depositary Receipts (ADRs)

3.1 Suitable foreign financing options do exist


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Muir Woods Group 2 14/18

Potential Effects on the Domestic Market

Order flow migration

Increased price volatility

3.2 Foreign investment willavoid affecting thedomestic market


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Concerns facing foreign investors:

Increased price volatility

Political risk Exchange rate

Inflation

Resources

Share Price


3.3 They canconvince investors into emergingmarkets


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The Financial Solution is to Seek InternationalFunding Using ADRs

CTCCan

Finance The Expansion:


Chile ISStable Enough to See Through theExpansion

The Domestic Market CantSupport theExpansion

CTC ISAn Attractive Proposition forForeign Investors


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CTC raised $92 million through Level 3 ADRs at$22.25 per share

CTC was an innovator in the ADR space

In April 1993, CTC issued 10-year convertible

bonds internationally for $200 million

What Actually Happened


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Muir Woods Group 2 Final Slide

Are There Any Questions?


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Appendix



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1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989

Chile 33.63 36.37 38.09 34.16 32.86 35.49 38.01 40.14 42.79 45.91 50.76

Growth

Rate8.68% 8.15% 4.74% -10.32% -3.79% 7.97% 7.12% 5.60% 6.59% 7.31% 10.56%


1.2.1 Chilean Population Growth Rate


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Country Population per telephone line Rank

Bahamas

2.2

1

Barbados

3.3

2

Uruguay 7.6 3

Costa Rica 7.9 4

Panama 9.4 5

Argentina

9.7

6

Trinidad and Tobago 11 7

Brazil 11.3 8

Venezuela 11.3 9

Colombia 13 10

Chile 15.5 11

Cuba 18.9 12

Guyana

23

13

Ecuador 27.4 14

Peru

32.8

15

El Salvador 38.1 16

Paraguay 41.1 17

Bolivia

41.4

18

Guatemala 62 19

Nicaragua 63.4 20

Jamaica 205 21


1.2.2 Chilean Population Per Line


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1.2.3 Chile vs Mexico Poverty


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2.2.1 Capital Requirements


CTC's Actual and projected capital expenditures (CP millions)

Actual Projected

1988 1989 1990 1991 1992 1993 1994 1995 1996

For tariff regulatedservices

41,719 79,325 100,602 95,042 77,458 60,934 60,934 60,934 60,934

For services notcurrently subject totariff regulation

4,377 11,520 4,963 4,380 3,413 2,720 2,720 2,720 2,720

For new servicesrequiring newconcessions

- 6,422 15,187 15,441 8,468 3,665 3,665 3,665 3,665

TOTAL 46,096 97,267 120,752 114,863 89,339 67,318 67,318 67,318 67,318


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2.2.2 Population Demographics


1989

Annually Monthly

POPULATION (M) 12.88

Workforce (M) 5.8364432

INCOME per household CLP 70,000.00

Income per individual (CP) CLP 23,333.33 CLP 1,944.44

(Assume 3 working individual per household)

Disposable Income (@ 5.38%) CLP 104.61


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2.2.3 Market Capitalization


0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

South America US

$in

Million

Market Capitalization (US VS South America)


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3.3.1 Exchange Rates July 87 Jan 90



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3.3.2 Chile Inflation Rates Jan 85 Jan 90

90107112 mw2 compania de telefonos de chile (1)

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