Ricardo Salinas Pliego, TV Azteca/Grupo

Since assuming the presidency in 1981 of Mexican home electronics
and furniture retailer Grupo Elektra, Ricardo Salinas Pliego has
guided the company through a series of market crises to its
position as one of Mexico’s premier companies today. In 1993, he
led a group of investors in the purchase of two privatized
television channels from the Mexican government, forming TV Azteca,
which has since captured 35% of Mexico’s prime-time viewing
audience. In 1997, TV Azteca’s highly successful $605.1 million IPO
was the largest equity issue out of Mexico since the peso
devaluation and earned the company Honorable Mention accolades in
LatinFinance’s Deal of the Year competition. Salinas Pliego
recently discussed Elektra, TV Azteca and the twists and turns of
Mexico’s markets with LatinFinance.

What was financing like for Elektra during the 1980s debt

In the early 1970s, bank credit in Mexico was only channeled to the
government and to industrial concerns that were supposed to
generate high employment. So the only way to get bank debt was
outside. It had to be dollar debt. And, of course, when the
devaluations started in 1976 and then in 1982, it was terrible for
our company because all the accounts receivable on the asset side
were denominated in pesos, but the accounts payable on the debt
side were dollars. So we lost all our capital twice. The first time
we lost it in 1976, we were able to restructure with the banks and
to keep on going and sort of turn it around. But in 1982 and 1983,
we were not able to do that, and we had to go into Chapter 11, into
bankruptcy, because the devaluation was so immense.

By the late 1980s, then, what was your financing

Because we learned a lot from that event, we decided that was not
going to happen to us any more. So, as of 1983, while my father was
working out this problem with the bankruptcy court and the banks, I
took to running the company on a day-to-day basis. So what we did
is, we operated only on a cash basis. We stopped selling on credit.
So the working capital needs were reduced. And basically we would
sell in cash and then pay the suppliers in cash. And that’s how we
turned the company around. We cut a lot of merchandise lines. We
used no credit at all. And we reduced the work force and that’s
what stabilized the company.On a cash basis, we started again to
grow very fast until 1987, when we decided that the economy in
Mexico had stabilized and that we could start giving credit again.
So we started with a credit program once more, and it’s been very

What do you think are some of the events or trends that have
turned the markets and economies of the region around?

Well, number one has been the privatization trend. Because all our
countries, in Latin America and Mexico for years, until the 1990s
basically, were infested with big government, big spending, state
enterprise, state banks, regulations. All these things were a real
drag on the economy, to the development of our country.In the late
1980s and early 1990s, the privatization of Telmex was a major
milestone here. Then the privatization of the banks, and the
closing of many, many state enterprises that were not feasible, the
TV privatization, all of these things-what they did was make the
government smaller. And that’s very good, because when the
government is small, it cannot steal so much. It cannot be so
inefficient. And it cannot get its finger in everybody’s
pie.Unfortunately, another huge task ahead is for our governments
to really impart justice, because the justice system here, the
justice process, is very backward, unwieldy, slow. So you can
commit a crime, and there’s absolutely nothing that happens to you.
You get off scot-free. And that’s something that our governments
have not faced yet, and they have to face.

Can you set the record straight on the transaction involving
Raul Salinas and your Panama holding company?

We could have a whole book for the record. We’ve been over this 100
times. This was a legal credit transaction where he decided to
invest some money as a bondholder in one of our companies, and the
bond is outstanding. He will be paid for that, plus interest, and
we do not view this as a business relationship any more so than I
have a business relationship with Fidelity, who holds some of our
bonds, or with whomever it might be.There is a relationship. There
always has been. We have been on the record as having a friendly
relationship with Mr. Salinas. But what I call a business
relationship is when somebody sits on your board or holds some of
your stock or you hold frequent business meetings with that person
to discuss business. This is not the case with Raul Salinas. For
us, fortunately, it was investigated by the Mexican Congress. The
allegations that his presence might have affected the (TV Azteca)
privatization are totally groundless, because when you’re buying
something from the government, you want to buy it as cheap as
possible and we paid 30% more than the next competitor’s bid! It’s
impossible for Raul to have exerted his influence and then I end up
paying 30% more. I don’t need friends like that, right?How did you
get into Mexican television?First, I was in the satellite
television business, and that sort of whetted my appetite for
telecommunications in general. Then we went into PBX phones that we
were selling here, and then we tried to get the cellular phone
concessions that were issued in 1991. At the end of the day, we did
not get anything.Then, when the Mexican government started to talk
about privatizing television, I immediately thought that it was
very interesting and started to investigate all I could about it.
And then gradually I started to get involved in it and I saw that
there was a great opportunity to break the monopoly of
television.For two years I was out all over the world talking to
people about what the television business was, trying to find
partners who would help us run the business, trying to raise money,
because we knew it was going to be a lot of money. So it was a
long, long process.

Did you get private equity partners?
Yes. It was all done in Mexico through GBM and Bursamex. Basically,
GBM and the bank syndicate put together the $450 million. Then the
Saba family put in $160 and Bursamex put in a hundred and something
million in private equity plans that we raised here in Mexico.

Any individuals who have been crucial for the development of
Mexico’s or Latin America’s markets?

I think definitely President Salinas in that he decided that
(privatization) was the way to go, and he implemented the policy
against the will of the majority of people in Mexico. People did
not want to get privatized. And all the bureaucrats and all the
politicians, they lost a lot in these deals. So they’re not happy.
And that’s why they’re crucifying him now. That’s on a political
level.On an enterprise level, there are many people who I would
mention. For example, Lorenzo Zambrano of Cemex, the way that he’s
grown his company internationally is admirable. And the way that
he’s taken on huge amounts of debt and then invested it wisely, I
think, has been a major development. Carlos Slim, with the way that
Telmex was turned around, is also a major player in the capital
market.What people in the capital markets business need to know is
who to entrust with their capital. So there’s some groups like
ours, like Cemex, like Telmex with Carlos Slim, who have been
delivering a track record of being able to invest the capital
wisely, taking care of their shareholders and creating value.

Anything that really stands out over the last decade for you

It’s hard to choose one-things that have marked us, for better or
for worse…the devaluation of 1976, of 1982, another one in 1987,
and another in 1994. And it’s taught us that this is a country with
cycles and with instability inherently built into it. So the only
way you can survive is by having your financial affairs in order
and that you will be able to take on the next crisis when and if it
comes. Will it come? I hope not. But if it does, we’re ready.