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Muir Woods 2 Ashish Chugh
Holly Cheung
Gareth Lloyd-Owen
Maja Trolle
Moneer Kattan
Compaia deTelfonos de Chile(CTC)
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There is One Key Issue
Muir Woods Group 2 2
Booming telecoms market but Chiles infrastructure is poor
Need substantial capital to expand
Alan Bond (owner) has had to sell his 365.5 million shares
CTC is in a difficult financial situation
Unstable Government
Situation
Complication
Question
Garcia must devise a strategy soon
Investors are uncertain about CTC
Many financial complications exist
It is unclear what competitors are going to do
Can CTC Finance the Expansion?
Can CTC Finance the Expansion?
Compaia de Telfonos de Chile
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Our Analysis Work Flow
Muir Woods Group 2 4
Module Activities Assigned 1 hr 2hr 3hr 4hr
1 Identify domestic barriers Gaz1 Investigate domestic financing options Gaz
1 Size of the market? Holly
1 Capital requirements? Holly
1 Population demographics Holly
2 Identify investor issues (fears) Ashish2 Foreign view of Chile (including history) Ashish
2 Forecasts on investments Ashish
2 Implications of funding the project internationally Gaz
3 Government history / ITT Maja
3 Governments ambition (what do they want?) Maja3 GDP growth Moneer
3 Telecommunication growth rate Moneer
3 Technological advancements (infrastructure etc.) Moneer
3 Country benchmarking Moneer
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The Financial Solution is to Seek InternationalFunding Using ADRs
CTCCan
Finance The Expansion:
Muir Woods Group 2 5
Chile ISStable Enough to See Through theExpansion
The Domestic Market CantSupport theExpansion
CTC ISAn Attractive Proposition forForeign Investors
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1.0 Chile ISStable Enough to See Through theExpansion
Muir Woods Group 2 6
1.1The Chilean Government DOESSupportCTC
1.2Chile DOESNeed This Level of Expansion
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The Government will have to re-nationalizeCTC if the financing fails
Over 300,000 pending telephone lines
Infrastructure falling behind other countries
Negative effect on international investmentscould stagnate economic growth
1.1 The Chilean Government DOESSupportCTC
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Chiles GDP and populationare growing
Pending phone applications are increasing by9.05% per year
Chile is ranked 11thof 21 Latin American
countries
1.2 Chile DOESNeed This Level of Expansion
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2.0 Unfortunately, The Domestic Market ISUnable to Support the Expansion
Muir Woods Group 2 9
2.1The domestic barriers aretoo difficult toovercome
2.2The domestic market istoo small to fund theexpansion
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Domestic Financing Possibilities:
Local Banks
Domestic pension funds
Chilean stock market
Cutting the dividend
2.1 The domestic barriers aretoo difficult toovercome
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Why is it more feasible to raise fundoverseas?
More developed markets
Longer trading hours
Higher daily transactions
Muir Woods Group 2 11
2.2 The domestic market istoo small to fundthe expansion
Chilean citizens couldnt afford to invest
Average household income = US $235
Disposable income = 5.38%
Paycheck only covers phone
Capital requirements
Data provided from the case
97,267 Mil. Peso = approximately $ 326 Mil.
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3.0 CTC CanAttract International Investors
Muir Woods Group 2 12
3.1Suitable foreign financing options doexist
3.2Foreign investment willavoid affecting thedomestic market
3.3 They canconvince investors into emergingmarkets
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Three options for foreign investment exist
Directly into the local stock market
Exchange Traded Funds (ETFs)
American Depositary Receipts (ADRs)
3.1 Suitable foreign financing options do exist
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Muir Woods Group 2 14/18
Potential Effects on the Domestic Market
Order flow migration
Increased price volatility
3.2 Foreign investment willavoid affecting thedomestic market
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Concerns facing foreign investors:
Increased price volatility
Political risk Exchange rate
Inflation
Resources
Share Price
Muir Woods Group 2 15/18
3.3 They canconvince investors into emergingmarkets
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The Financial Solution is to Seek InternationalFunding Using ADRs
CTCCan
Finance The Expansion:
Muir Woods Group 2 16/18
Chile ISStable Enough to See Through theExpansion
The Domestic Market CantSupport theExpansion
CTC ISAn Attractive Proposition forForeign Investors
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Muir Woods Group 2 17/18
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
What Actually Happened
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Muir Woods Group 2 Final Slide
Are There Any Questions?
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Appendix
Muir Woods Group 2 19
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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
Rate8.68% 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
1.2.1 Chilean Population Growth Rate
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Country Population per telephone line Rank
Bahamas
2.2
1
Barbados
3.3
2
Uruguay 7.6 3
Costa Rica 7.9 4
Panama 9.4 5
Argentina
9.7
6
Trinidad and Tobago 11 7
Brazil 11.3 8
Venezuela 11.3 9
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
1.2.2 Chilean Population Per Line
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Muir Woods Group 2 22
1.2.3 Chile vs Mexico Poverty
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2.2.1 Capital Requirements
Muir Woods Group 2 23
CTC's Actual and projected capital expenditures (CP millions)
Actual Projected
1988 1989 1990 1991 1992 1993 1994 1995 1996
For tariff regulatedservices
41,719 79,325 100,602 95,042 77,458 60,934 60,934 60,934 60,934
For services notcurrently subject totariff regulation
4,377 11,520 4,963 4,380 3,413 2,720 2,720 2,720 2,720
For new servicesrequiring newconcessions
- 6,422 15,187 15,441 8,468 3,665 3,665 3,665 3,665
TOTAL 46,096 97,267 120,752 114,863 89,339 67,318 67,318 67,318 67,318
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2.2.2 Population Demographics
Muir Woods Group 2 24
1989
Annually Monthly
POPULATION (M) 12.88
Workforce (M) 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%) CLP 104.61
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2.2.3 Market Capitalization
Muir Woods Group 2 25
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
South America US
$in
Million
Market Capitalization (US VS South America)
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3.3.1 Exchange Rates July 87 Jan 90
Muir Woods Group 2 26
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Muir Woods Group 2 27
3.3.2 Chile Inflation Rates Jan 85 Jan 90