Telmex to raise US$2bn in debt offering

Mexico's largest phone company Telmex (NYSE: TMX) on Wednesday registered with the US Securities and Exchange Commission to sell up to US$2bn in debt. The funds will be used for general corporate purposes, including working capital and capital expenditures, as well as repaying debt, the company said in an F-3 filing with the SEC. The securities will be placed using a "shelf" registration process, which allows Telmex to sell or issue debt in one or more offerings. Telmex has taken advantage of historically low interest rates in Mexico and the US to refinance its debt and raise fresh funds. Already this year the company has issued US$1bn in senior notes and 19bn pesos (US$1.7bn) in commercial papers, but Wednesday's announcement caught analysts by surprise. "It is a big surprise. No one expected them to announce such a big placement at the end of the year," GF Interacciones telecoms analyst Jorge Lagunas told BNamericas. "This represents a 30% increase in [Telmex's] debts." At the end of the third quarter, Telmex reported long-term debt and debt payments over the following 12 months of 59.5bn pesos. According to Lagunas, the funds raised by the placement could be used to restructure the company's debt profile, pay for higher capex in 2004, or fund an acquisition. In November, Telmex acquired the assets of AT&T Latin America, giving it a presence in Chile, Argentina, Brazil, Peru and Colombia. Mexican newspapers have quoted Telmex CEO Jaime Chico Pardo as saying that Brazil's leading long distance operator Embratel (NYSE: EMT) is one of several possible takeover targets in the region. The company also raised its 2004 capex program from US$1.2bn to the US$1.6bn-1.7bn range. Lagunas expected the market to punish Telmex shares in the short-term due to the increase in debt and the uncertainty surrounding the timing, terms and final use of the funds raised from the securities placement. Gerardo Copka at Monex Casa de Bolsa was more upbeat on the short-term outlook of Telmex shares, saying the company is probably looking at an acquisition that would make it a growth story again after years of flat growth in its home market. "The company generates a lot of cash flow and we will have to see what they do with the money [from the debt securities]," he said. Telmex is owned by Latin America's wealthiest man, Carlos Slim, who also controls the region's largest mobile operator America Movil as well as banking and construction assets in Mexico. Telmex reported assets of 163bn pesos, 15.4 million fixed lines in service, and 1.4 million Internet access accounts at the end of September.