Tricom’s launch in 1992 ended more than a 60-year telecom monopoly and ushered in what is today one of the most modern telecommunications systems in Latin America. Tricom’s rise highlighted the aggressive growth of the Dominican Republic’s powerful Pellerano family. Like other local family groups, the Pelleranos owned banks, an insurance company, a media company, free trade zone operations and many other diversified interests. And, as is so often the case in the Dominican Republic, the banks lent generously to group companies, with disastrous consequences.

Today, the family’s fortunes are in a tailspin. Bancrédito, the country’s fourth-largest bank with $792 million in assets last year, agreed to a forced sale in July in the wake of the Baninter banking scandal. The Central Bank said Bancrédito was mismanaged. The Pelleranos’ media group, Omnimedia, has cut jobs and put on indefinite hold plans for state-of-the-art TV studios. Potential buyers have their eyes on Segna, the country’s leading insurance company still owned by the Pelleranos.

Meanwhile Tricom, the only Dominican company traded in the New York Stock Exchange, is fighting for its life. The company defaulted on an $11.4 million interest payment in September. “The source of our problems is the devaluation of the peso, which results in pressure on cashflow,” says Ramón S. Tarrago Tricom’s chief financial officer. “Our debt is in dollars but our revenues are in pesos. It’s a double whammy.”

Tricom is the Dominican Republic’s second-largest telecommunications company but it carries $466 million in debt, of which 20% is due in a year or less. By mid-2003, sales had dropped by 15% to $110 million and cash reserves were down to $4 million, and the company has no immediate access to short-term credit. Motorola, which owns 40% of Tricom, has not come to its assistance.

Moody’s downgraded Tricom’s ratings to Ca from Caa1. “We believe that the most likely outcome is for Tricom to remain a going concern after the expected debt restructuring, and that the company will most likely avoid a liquidation scenario,” Moody’s said in October. Tricom raised $70 million in January from a group of private investors led by CEO and Chairman Arturo Pellerano to repay short-term debt.

Both Bancrédito and Tricom are controlled by GFN, the Cayman Islands-based Pellerano family holding company. The bank provided major direct funding and financial guarantees to Tricom until the economy took a dive in the wake of the Baninter scandal, forcing the family to sell Bancrédito to the León Jiménes Group, another family-owned conglomerate, for $68 million.

In 2001, Tricom sank more than $40 million into what it claimed was Central America’s first seamless wireless communication network. But the company ran into trouble when BellSouth sued claiming Tricom was offering the same technology as its Panamanian subsidiary. The suit forced Tricom to freeze its expansion in Central American. Still, Tricom has some valuable assets including fully digitalized local phone service, long distance and Internet services. Its wireless network covers about 90% of the population, and its local phone service offers 65% coverage. There is plenty of room for growth, since penetration rates are still low.

Bear Stearns, which launched Tricom’s equity and bond issues, has now been called in to advise on a restructuring for Tricom. Codetel, a wholly-owned Verizon subsidiary, is said to be one of the interested buyers and acquiring Tricom would give it a near-monopoly. Mexican tycoon Carlos Slim, who already owns 12% of Tricom, is another possible suitor (see “Bargain Hunting in a Buyer’s Market). Spain’s Telefónica is a third potential buyer. “I can’t comment on specifics. We’re seeking strategic or financial partners. Some foreigners have shown interest,” Tarrago says. “The approaches we’ve had from possible partners is the best indication that the company is perceived as having a real value.” LF