Embratel to renegotiate close to US$600mn of debt

Brazilian long distance operator Embratel, controlled by Mexican telco Telmex (NYSE: TMX), will renegotiate close to US$600mn of its debt with loans and the sale of bonds on the Brazilian market, local daily Valor Econômico reported Telmex CFO Adolfo Cerezo as saying. Embratel aims to finish restructuring its debt by the end of this year, Cerezo reportedly said during a conference call with analysts and investors. Telmex, which bought Embratel from MCI last July, will neither offer financing nor guarantee the debt of the Brazilian company, according to Embratel CFO Isaac Barensztejn. Credit ratings agency Moody's has upgraded its outlook for Embratel's domestic debt to positive from stable due to the probability that the company will renegotiate a lower cost of debt, increase revenue and reduce default, Valor reported. Embratel generated free cash flow of 235mn reais (US$82mn) in the first nine months of 2004, equal to approximately 6% of its adjusted total debt including unfunded pension and medical care plan deficits of 4bn reais, according to Moody's. The company's short-term debt of 1.5bn reais was covered by cash and marketable securities of 804mn reais and free cash flow, with a moderate level of refinancing risk. Although Embratel's profitability has improved, its Ebitda return on average assets of 4.9% in 2003 remains significantly below the average for Brazilian wire line incumbents.