Latin Finance - December 2008 - 48

Inside source Consolidation Calling Luiz Eduardo Falco Brazil’s larger telecom players will have continued opportunity to acquire smaller assets, says Luiz Eduardo Falco, CEO of Telemar, also known as Oi. In mid-November, the company neared approval for its 13 billion reais purchase of Brasil Telecom. When will the Brasil Telecom acquisition be completed? We expect the presidential decree to be signed [in lateNovember]. If the decree is signed, we will be over the most complicated part. We will then go back to [telecommunications regulator] Anatel with the decree that allows one concessionaire to buy another, and ask them to approve our contract. We will then see if we can make it this year. As you know, we have a contract that says if we don’t close this year we pay a penalty. It will be tough, it will be tight, but it can be done. How do you foresee refinancing the one-year debt in late 2009? We are a strong cash-generation company. The peak in funding will be 2009. Of course we have an interest to refinance all the loans that we have. We hope the market will be better at that time. These days the market is very hard, and prices are high. Our optimal debt structure will be 1.5-2.0x Ebitda, and that’s where we expect to be for the next two years. I think it’s too soon to know what the options will be. We haven’t seen any problems with refinancing our debt so far. We are a strong cash flow generator and a good credit risk. What about the remainder of the acquisition financing, following the issue of 3.6 billion reais in one-year promissory notes and signing of a 4.3 billion real 2016 loan? We had funding from Banco do Brasil and from the commercial banks, then we tried to get some funding from the international market [a $1.0-$1.5 billion bond issue attempted in September] but at that time it was closed. We had 90% of the funding but we still needed some 10% that was missing, and we just closed on a bridge loan for one year with Brazilian banks. We also already have funding for 2009. The company’s net debt will go from 3 billion reais to 22 billion reais, which will give 2.0-2.1x Ebitda for the combined company, which is comfortable. Over the next three years, we will try to reduce this to 1.5x. Do you plan to continue the reorganization of the company’s share structure? We want to first finalize the Brasil Telecom deal, then we will continue the process to simplify to simplify the share structure that our company has. Long term, we will probably have a simple structure. We have no interest in having a lot of different shares on the market. Do you see more opportunities for acquisitions in the future? I think the market will continue consolidating, because this is a capital-intensive industry. There are technological challenges all the way down. The smaller guys have problems to survive, so consolidation is a trend. The Spanish [Telefónica] and Italian [TIM] companies aren’t very clear if they want to merge their operations in Brazil. There are not too many big assets in Brazil, but there are some smaller assets, and the large groups will buy these assets if they become available – nothing as big as Brasil Telecom. If we complete the Brasil Telecom acquisition, the three big groups [Telemar, Telefónica, TIM] will be all about the same size, and will look for these smaller assets. We are always looking. Sometimes, though, we have to prioritize. We have to absorb Brasil Telecom next year, but if there is an asset that makes sense and we have the conditions to buy, we will be in the market. LF How do you see access to capital markets? It will be tough. But companies like us which are investment grade long-term infrastructure companies, normally when the windows open we would be one of the first to get access to this market. That’s what you see in Brazil. Actually, we are getting short-term debt, but we still have flow. It’s not ideal, of course as we want long-term cheap money. It’s not available now but at least you have the flow. In terms of the capital structure, it doesn’t matter if it is local or foreign [borrowing]. More important is the term and the cost, of course. The only difference is that if it’s local you don’t need to hedge the currency. We used to have about 50-50 foreign-local debt. Now, of course, we have much more local money. When foreign money becomes available again, we can rebalance. 48 LATINFINANCE December 2008

Latin Finance - December 2008

Table of Contents for the Digital Edition of Latin Finance - December 2008