This content is from: Local Insights

Brazil

On July 29 1998 the sale of Brazil's giant telecoms company, Telebrás, raised R$22 billion (US$19 billion), between U$4 billion and U$5 billion more than expected in the financial markets and representing a premium of 63.74% over the minimum price. The sale demonstrated the enthusiasm that multinational companies have for Latin America, and confirmed that international companies are willing to commit large resources into the emerging markets.

Telebrás was the second largest telecoms enterprise in the world to be privatized; its sale price lower only than Japan's telecom privatization (the giant Japanese NTT raised US$ 70.44 billion, between February 1986 and November 1987).

In preparation for the privatization, the Telebrás System was split into 12 holding companies:

  • one long-distance and international operator (Embratel);
  • three fixed phone services companies (Telesp, Tele Norte-Nordeste-Leste and Tele Centro-Sul); and
  • eight so-called A-band cellular companies for the mobile cellular system (Tele Celular Sul, Tele Nordeste Celular, Tele Leste Celular, Tele Centro Oeste Celular, Tele Norte Celular, Telesp Celular, Telemig Celular and Tele Sudeste Celular).

The highest premium paid was for Tele Leste Celular (including Bahia and Sergipe); bought by a consortium formed by the Spanish companies Iberdrola Investimento and Telefónica Internacion, who bid 242.40% above the minimum price, R$230 million.

The controversial long-distance company, Embratel, was sold with a premium of 47.22% to the North America's MCI for R$2.65 billion.

The highest paid was for Telesp (the fixed regional operator of São Paulo), Brazil's most valuable fixed-line business, at R$5.78 billion, a premium of 64.29% over the minimum price of R$3.52 billion. The purchaser was a consortium led by Telefónica de España (formed by RBS, Portugal Telecom, Iberdrola and BBV). Telefónica de España also bought Tele Sudeste Celular for R$1.36 billion, corresponding to a premium of 138.6%. With its participation in the Tele Leste Celular, Telefónica now represents the company with the largest presence in telecoms services in Brazil.

Issues now being addressed include the improvement of the quality of the services and the reduction of telephone line prices. Band B of the mobile cellular system was privatized in eight areas last year, which has resulted in increased competition in the sector. With the new technology that will be implemented by new owners of the companies, it is likely that selling through the Internet will grow considerably.

There is a new generation of multi-utility enterprises. These companies operate in services such as electricity, gas, telecoms and sanitation. Spain's Iberdrola can be described as multi-utility. Iberdrola has bought the Tele Leste Celular, and two electrical companies, Coelba (Bahia) and Cosern (Rio Grande do Norte) in Brazil.

The Brazilian government is planning to use the value received from the sale of Telebrás to pay the interest on its external debt. However, this value is limited at first because the companies that bought Telebrás must pay only 40% of the total this year; the rest will be financed for a maximum period of two years.

The expectation now is for the bidding of the so-called mirror-companies that will be created and sold-off to compete with the companies now privatized. Competition for such companies could be intense as large multinational operators see the opportunities and potential of the Brazilian market and do not want to miss out.

Eliana Maria Filippozzi

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