Compaia de

Telfonos de Chile
(CTC)
Muir Woods 2

Ashish Chugh
Holly Cheung
Gareth Lloyd-Owen
Maja Trolle
Moneer Kattan

Compaia
de Key
Telfonos
There is One
Issue de Chile
Can CTC Finance the Expansion?
Booming
Need

Situation

substantial capital to expand

Alan

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

CTC

is in a difficult financial situation

Unstable
Garcia

Many
It

Question

Government

must devise a strategy soon

Investors

Complication

telecoms market but Chiles infrastructure is poor

are uncertain about CTC

financial complications exist

is unclear what competitors are going to do

Can CTC Finance the Expansion?

Muir Woods Group 2

The Questions That Must Be Answered

Can the Compaia de Telfonos de Chile Finance An Expansion?
1.0

2.0

Is Chile Stable Enough to See

Through The Expansion?
1.1
Does the
Government
Support
CTC?

1.2
Does The
Country
Need This
Level of
Expansion?

3.0

Is The Domestic Market Unable

to Support The Expansion?
2.1
Are
Domestic
Financial
Barriers to
Difficult to
Overcome?

2.2
Is the Market
to Small to
Fund the
Expansion?

3.1
Can They
Convince
Investors
Into
Emerging
Markets?

Can They Attract International

Investors?
3.2
Will Foreign
Investment
Avoid
Affecting the
Domestic
Market?

3.3
Do Suitable
Foreign
Financing
Options
Exist?

1.0 Activities & Analysis

2.0 Activities & Analysis

3.0 Activities & Analysis

Identify domestic barriers

Identify issues (fears)

Government History / ITT

Investigate domestic
financing options

Foreign view of Chile

(including history)

Governments ambition (what do they want?)

Size of market?

Forecasts on investments

Capital requirements?

Implications for funding

internationally

Telecommunication growth rate

Population demographics

Muir Woods Group 2

GDP growth
Technological advancements (infrastructures)
Country benchmarking

Our Analysis Work Flow

Module

Activities

Assigned

Identify domestic barriers

Gaz

Investigate domestic financing options

Gaz

Size of the market?

Holly

Capital requirements?

Holly

Population demographics

Holly

Identify investor issues (fears)

Ashish

Foreign view of Chile (including history)

Ashish

Forecasts on investments

Ashish

Implications of funding the project internationally

Gaz

Government history / ITT

Maja

Governments ambition (what do they want?)

Maja

GDP growth

Moneer

Telecommunication growth rate

Moneer

Technological advancements (infrastructure etc.)

Moneer

Country benchmarking

Moneer

Muir Woods Group 2

1 hr

2hr

3hr

4hr

The Financial Solution is to Seek International

Funding Using ADRs

CTC Can Finance The Expansion:

Chile IS Stable Enough to See Through the
Expansion

The Domestic Market Cant Support the

Expansion
CTC IS An Attractive Proposition for
Foreign Investors
Muir Woods Group 2

1.0 Chile IS Stable Enough to See Through the

Expansion

1.1 The Chilean Government DOES Support

CTC

1.2 Chile DOES Need This Level of Expansion

Muir Woods Group 2

1.1 The Chilean Government DOES Support

CTC

The Government will have to re-nationalize

CTC if the financing fails
Over 300,000 pending telephone lines
Infrastructure falling behind other countries
Negative effect on international investments
could stagnate economic growth
Muir Woods Group 2

1.2 Chile DOES Need This Level of Expansion

Chiles GDP and population are growing

Pending phone applications are increasing by
9.05% per year
Chile is ranked 11th of 21 Latin American
countries

Muir Woods Group 2

2.0 Unfortunately, The Domestic Market IS

Unable to Support the Expansion

2.1 The domestic barriers are too difficult to

overcome

2.2 The domestic market is too small to fund the

expansion

Muir Woods Group 2

2.1 The domestic barriers are too difficult to

overcome

Domestic Financing Possibilities:

Local Banks

Domestic pension funds

Chilean stock market

Cutting the dividend

Muir Woods Group 2

10

2.2 The domestic market is too small to fund

the expansion

Chilean
couldnt
to invest
Why is itcitizens
more feasible
toafford
raise fund
overseas?
Capital requirements
Average household income = US $235
More
developedfrom
markets
Data
provided
case
Disposable income =the
5.38%

Longer
trading
hours
97,267
Mil.
Peso
= approximately
$ 326 Mil.
Paycheck only covers
phone
Higher daily transactions

Muir Woods Group 2

11

3.0 CTC Can Attract International Investors

3.1 Suitable foreign financing options do exist

3.2 Foreign investment will avoid affecting the
domestic market
3.3 They can convince investors into emerging
markets

Muir Woods Group 2

12

3.1 Suitable foreign financing options do exist

Three options for foreign investment exist

Directly into the local stock market

Exchange Traded Funds (ETFs)

American Depositary Receipts (ADRs)

Muir Woods Group 2

13/18

3.2 Foreign investment will avoid affecting the

domestic market

Potential Effects on the Domestic Market

Order flow migration

Increased price volatility

Muir Woods Group 2

14/18

3.3 They can convince investors into emerging

markets

Concerns facing foreign investors:

Increased price volatility
Political risk
Exchange rate
Inflation
Resources
Share Price
Muir Woods Group 2

15/18

The Financial Solution is to Seek International

Funding Using ADRs

CTC Can Finance The Expansion:

Chile IS Stable Enough to See Through the
Expansion

The Domestic Market Cant Support the

Expansion
CTC IS An Attractive Proposition for
Foreign Investors
Muir Woods Group 2

16/18

What Actually Happened

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

Muir Woods Group 2

17/18

Are There Any Questions?

Muir Woods Group 2

Final Slide

Appendix

Muir Woods Group 2

19

1.2.1 Chilean Population Growth Rate

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
Rate

8.68%

8.15%

4.74%

-10.32% -3.79% 7.97% 7.12%

5.60%

6.59%

7.31%

10.56%

Muir Woods Group 2

20

1.2.2 Chilean Population Per Line

Country

Population per telephone line

Rank

Bahamas

2.2

Barbados

3.3

Uruguay

7.6

Costa Rica

7.9

Panama

9.4

Argentina

9.7

Trinidad and Tobago

11

Brazil

11.3

Venezuela

11.3

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

Muir Woods Group 2

21

1.2.3 Chile vs Mexico Poverty

Muir Woods Group 2

22

2.2.1 Capital Requirements

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

Actual
1988

1989

Projected
1990

1991

1992

1993

1994

1995

1996

100,602

95,042

77,458 60,934 60,934 60,934 60,934

For tariff regulated

services

41,719 79,325

For services not

currently subject to
tariff regulation

4,377

11,520

4,963

4,380

3,413

2,720

2,720

2,720

2,720

6,422

15,187

15,441

8,468

3,665

3,665

3,665

3,665

46,096 97,267

120,752

114,863

89,339 67,318 67,318 67,318 67,318

For new services

requiring new
concessions
TOTAL

Muir Woods Group 2

23

2.2.2 Population Demographics

1989
Annually
POPULATION (M)
Workforce (M)

Monthly

12.88
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%)
Muir Woods Group 2

CLP 104.61
24

2.2.3 Market Capitalization

Market Capitalization (US VS South America)

3,000,000

$ in Million

2,500,000
2,000,000
1,500,000
1,000,000
500,000

South America
Muir Woods Group 2

US
25

3.3.1 Exchange Rates July 87 Jan 90

Muir Woods Group 2

26

3.3.2 Chile Inflation Rates Jan 85 Jan 90

Muir Woods Group 2

27