Guillermo Jofré, chief financial officer for Impsat Fiber Networks, is in an enviable position. The Argentine data networking company is 10 years old, a venerable age by current standards. This means it is well past the high-risk stage that afflicts most Internet start-ups. And instead of fighting for space in crowded online markets, Impsat concentrates on the less romantic but possibly more lucrative business of building the region’s Internet plumbing – the long-distance data networks that make the Net hum.
Still, Impsat does have a few new-technology traits. For one, it loses money. Impsat’s 2000 first quarter net revenues rose 10% to $58.8 million, but net losses rose to $29.1 million or 42% more than in the same period in 1999. And like other Internet companies, Impsat’s stock price has crashed. It fell from a high of $46 1/2 soon after its initial public offering earlier this year, to below $9 in May.
Yet Jofré says he is not troubled. Speaking as he nonchalantly sips Earl Grey tea, Jofré says a market correction was overdue and Impsat was simply dragged down in the undertow of Nasdaq’s collapse. “The general perception of investors and analysts and ourselves is that there is no fundamental or company-related reason for the price decline,” he says. “We are very, very optimistic that there is tremendous value there in terms of price potential.”
Realizing that value depends on Impsat’s ability to execute its ambitious plans to build an integrated broadband network for Latin America. Impsat has laid about half of the planned 4,000 kilometer network, most of it in Argentina, and is starting to link all the major cities in Argentina, Brazil, Colombia and Venezuela.
Jofré says there is tremendous demand for communications networks capable of sustaining the region’s data transmission needs. The growing power of corporate computer systems and the expected increase in Internet traffic are creating huge demand for bandwidth throughout Latin America.
However, Impsat is not the only company to have noticed this hunger for communications capacity. Competitors from the US and Europe are entering the market, and unlike Impsat they often have large and wealthy parent companies. And unlike Impsat, part of Argentina’s Pescarmona industrial group, they are not heavily exposed to a country still a long way from winning an investment-grade credit rating.
This is why Jofré’s role in maintaining Impsat’s access to the capital markets is so important. A former polo player and a former debt negotiator for the Argentine government, Jofré joined Impsat in 1995 and has executed its capital raising efforts ever since.
Impsat first accessed the US high-yield market in 1996, and then again in 1998. Jofré’s years of experience in the markets seems to have paid off. “Guillermo is a professional CFO who knows how the Street works and knows how to access capital,” says James Wilmott, who manages Morgan Stanley’s $1.6 billion Princes Gate Fund.
Two years ago, Morgan Stanley became an investor in Impsat, paying $125 million for 25% of the company, a deal that involved buying out a minority stake held by Telecom Italia. In 1999, British Telecom bought 20% of Impsat for $150 million, a price that reflected a big increase in the company’s value. Jofré says BT is a financial investor, and says: “That means they have absolutely no rights, no technical people involved.”
He claims that BT in particular wanted a bigger share in the company. In retrospect, the decision to go public with a Nasdaq listing in February – in which Impsat raised $240 million – was a masterstroke. Morgan Stanley, Goldman Sachs and Salomon Smith Barney underwrote the deal. Not only was the timing good, but the listing now means that it is easier for Impsat to use its stock as an acquisition currency. British Telecom must have been sufficiently impressed with Impsat’s management. It bought $40 million worth of stock during February the IPO to avoid dilution.
Jofré pressed ahead to load up on financing while the going was good with a five-year, $300 million bond yielding 13 3/4 % just after the IPO and a $300 million vendor financing deal with Nortel Networks. Jofré says: “Now this means that we have no limitations in terms of financing and we are playing in the big league.”
Maybe, but Delaware-registered Impsat is still ultimately an Argentine company, heavily exposed to a politically volatile country that is struggling to return to growth six months after Fernando de la Rúa took over as president (see country report on Argentina, page 44). Jofré says, “In the business community you still do not perceive the confidence in the new administration or where [it is] taking us.” He complains that “there is growth, but there is not investment and we need more investment. And that is not [happening] because of uncertainty about politics or how the country will keep growing.”
But Jofré says that with a few exceptions, the Argentine public will not longer accept politicians who promote ideas that could affect the region’s economic stability. And fundamental political changes have made Latin America in general, a better place to do business. “Stability now is a social value in the region,” he says.