New Arbiter in airline merger case
Jorge Pinzon, Colombia’s newly appointed industry and trade superintendent, is stepping in to arbitrate the merger plans of Colombia’s two largest airlines after the resignation of Emilio Jose Archila. In June, Archila rejected the airlines’ merger proposal, saying the newly merged company would have a 70% market share, creating an industry monopoly. The airlines, Aerovias Nacionales de Colombia SA (Avianca) and Aerolineas Centrales de Colombia (Aces), appealed Archila’s ruling and filed a complaint against him. The airlines accused Archila of speaking to the media about the merger plans before the final ruling was made. Economic Development Minister Eduardo Pizano agreed that Archila should not have spoken to the media and recommended his resignation. The airlines resubmitted the proposal to merge under Pinzon who is expected to rule favorably on the merger proposal. If the merger is approved, the new company will have a 56-plane fleet and become one of Colombia’s largest private employers. Avianca, Colombia’s largest airline, is drowning under $567.1 million of debt amassed by the first quarter of 2001, despite the injection of $180 million by principle shareholder and majority owner Valores Bavaria. The company’s shareholders must invest a reported $68.5 million into the company before the merger, but this cash will not be available before the merger receives a green light from the government. The company is facing possible bankruptcy if the merger is rejected. The company currently employs 3,500 people, Colombia’s soaring unemployment rate is already topping 18%.
Colombia’s second largest airline, Aces, is financially sound regardless of whether the merger goes ahead. Aces, majority-owned by Colombia’s official National Coffee Growers’ Federation, experienced a major financial rebound in 2000, with a reported $2.1 million net income compared to a net loss of $1.9 million in 1999.
Japanese-Brazilian deal
A joint effort by law firms from the US, Japan and Brazil set in motion Banco do Brasil’s $300-million securitization of remittance payments by Brazilian residents working in Japan, led by Merrill Lynch. It is the first financial future flow transaction in Brazil secured on electronic remittances. Nearly 225,000 Brazilians live and work in Japan. The Nikkei Remittance Trust 2001-1 certificates, due August 2006, were 20% oversubscribed. The bonds have a five year maturity with a 7.875% coupon paid quarterly. Banco do Brasil will pay 375 basis points over US Treasurys. Banco do Brasil will sell the rights to Japanese worker remittances through a Cayman Island special-purpose entity, Nikkei Remittance Rights Finance Co, which will issue the notes. Standard & Poor’s gave the certificates a BBB+ rating; higher than Banco do Brasil’s local currency issuer credit rating of BB+/stable. Brazilian law firm Pinheiro Neto Advogados, led by Jose Carlos Meirelles, advised Banco do Brasil and Merrill Lynch. Mayer Brown & Platt, led by Douglas Doetsch, acted as US legal advisors for Banco do Brasil. Dewey Ballantine acted as US representative for Merrill Lynch and Takashi Suzuki of Japanese firm Hamada & Matsumo provided advice on Japanese law.
Enersis signs $1-billion syndicated loan
Chilean electric company Enersis SA, and its 60% owned subsidiary of Empresa Nacional de Electricidad (Endesa-Chile), signed a $1-billion syndicated loan in August. Twenty-one banks, including lead arrangers Banco Bilbao Vizcaya Argentaria, Banco Santander Central Hispano, Dresdner Bank Luxembourg and Citibank, participated in one of the largest financial transactions for a private company in Latin America. Lenders will split the loan between Enersis and Endesa-Chile, allocating $500,000 to Enersis and $500,000 to Endesa-Chile. The finance structure is a three-year term loan with a bullet repayment at maturity and an interest rate of LIBOR plus 75 basis points. The loan will be used to refinance outstanding debt. The interest rate is based on Enersis’s and Endesa-Chile’s Standard & Poor’s long-term senior unsecured foreign currency debt ratings. Standard & Poor’s assigned a single-A-minus rating to the Enersis $500 million loan, due August 2004. Chilean law firm Philippi Yrarrazaval Pulido & Brunner acted as Chilean counsel for Banco Bilbao Vizcaya Argentaria, Banco Santander Central Hispano, Dresdner Bank Luxembourg and Citibank, the lead arrangers of the two $500 million loans. International law firm White & Case acted as US council for the lenders. Davis Polk & Wardwell acted as US counsel for Enersis and Endesa.
Paraguay to privatize state industry
Following the wave of industry privatizations in Latin America, the government of Paraguay appointed Baker & McKenzie to advise on the privatization of the state telecommunication company Administracion Nacional de Telecomunicaciones (Antelco) and the water sanitation company, Corporacion de Aguas Sanitarias (Corposana). Antonio Ortuzar Jr., partner at Baker & McKenzie’s Santiago firm Cruzat Ortuzar & Mackenna, will lead the legal team through the complicated privatization process. The project, sponsored by the World Bank, is currently in the preliminary planning stages and is working against a tight deadline of five months from start to finish. “The most complicated issue will be to create a system that fosters competition among the different companies so there will be no risk of an industry monopoly,” says Ortuzar. Plans to privatize the telecommunication and sanitation industries met stiff opposition from union members and employees of the two agencies who feared the loss of jobs if the privatization process was allowed to proceed. Sinattel, Antelco’s union, has filed a constitutional challenge against the law that authorizes the privatization of state assets via a sale or auction. The auction for Antelco and Corposana is tentatively scheduled for December 2001. Corposana’a plan to privatize met strong opposition when more than 1,000 employees declared a 15-day strike to protest the privatization plan and the dismissal of more than 400 temporary workers in August. Paraguay’s state airline Lloyd Aéreo Paraguayo SA (LAPSA), the sugar refinery Canas Paraguayas, and the steel company Aceros Paraguay, have been sold off to private investors. The state power company Administracion Nacional de Electricidad (Ande), cement company Industria Nacional del Cemento (INC), oil firm Petroleos Paraguayos (Petropar), and railway company Ferrocarril Carlos Antonio Lopez are all in the pipeline for privatization.
Milbank advises on telecom deal
Tele Norte Leste Participacoes (Telemar), the Brazilian telecommunications company, signed $1.43 billion in financing arranged by ABN AMRO and 16 additional banks including Citibank, BankBoston, ING Barings, JP Morgan and Wachovia in August. This is the largest Latin American telecom finance deal of the year. The financing is equally split between a syndicated loan and vendor financing. The lenders provided a $700 million syndicated loan and the remaining $725 million in vendor financing came from equipment suppliers Nokia, Alcatel and Siemens. Telemar will use the financing to build a new PCS (personal communication services) wireless network throughout Brazil. The interest rate is tied to Brazil’s risk rating. The loan is structured so Telemar pays 550 basis points above LIBOR, but if Brazil’s risk rating improves, Telemar will pay 330 basis points above LIBOR. Glenn Gerstell, partner of Milbank Tweed Hadley & McCloy, which acted as legal advisors for Telemar, says Telemar’s strong financial position helped expedite the deal. “The banks recognized Telemar’s strength as a company, that unlike the pure start-ups, has a substantial cash flow. And with the backdrop of Argentina’s crisis, no one wanted to drag this thing out. We used template financing for a quick turnover. Speed was of the essence,” he says. Telemar is publicly traded on the Brazilian Bovespa exchange and has ADRs (American Depository Receipts) on the New York Stock Exchange. The Milbank Tweed Hadley & McCloy team also included associates Elizabeth Zelinka, Nicholas DeCarlo and Steven Chung of the Washington DC office. Mayer Brown & Platt acted as legal advisors for ABN AMRO and Cleary Gottlieb Steen & Hamilton represented Nokia. Gibson Dunn & Crutcher advised Siemens and Alcatel.
Enitel acquisition challenged
A consortium led by telecom consultants Telia Swedtel, a subsidiary of Swedish telecommunications company Telia, successfully bid $83 million for a 40% share of Nicaragua’s state telecommunications company, Empresa Nicaraguense de Telecomunicaciones (Enitel). The Nicaraguan government finally began the industry’s privatization process after several failed attempts over the past five years. Telia Swedtel was the only bidder in the auction, even though Mexico’s Radio-Movil Dipsa, a division of cellular operator America Movil, and France Telecom were present at the auction and qualified to bid. The government rejected a $63 million bid from France Telecom last year. The consortium will pay $33.1 million initially and $10 million a year for the next five years. However Managua’s mayor, Herty Lewites, is challenging the acquisition. He filed a court order claiming the sale was illegal due to $27 million in taxes owed to the city by Enitel. Although a Nicaraguan Supreme court judge ruled the auction illegal, Telia Swedtel told the press that it is confident the sale was done within a complete legal framework. The World Bank fears that unless privatization plans progress throughout Nicaragua, the leftwing Sandinista National Liberation Front, could potentially take power in the upcoming elections. Herty Lewites is a member of the Sandinista National Liberation Front, which strongly opposes state-industry privatizations.
Venezuelan antitrust body investigates CANTV
US energy company, AES Corp, launched a $1.4 billion bid for a 43.2% share of Venezuela’s national telephone company Compania Anonima Nacional Telefonos de Venezuela (CANTV) in September. AES is offering $24 for each American Depositary Receipt (ADR). But CANTV, controlled by Verizon (30%) and Spain’s Telefonica, has asked Venezuela’s antitrust watchdog, Procompetencia, to evaluate the offer. CANTV is concerned that AES would have a monopoly on Venezuela’s utilities. AES acquired Electricidad de Caracas (EDC) last year in a $1.66 billion hostile takeover. AES currently owns a 6.9% stake in CANTV, and if the offer is approved, it will have controlling ownership. US law firm Skadden Arps Slate Meagher & Flom LLP is advising AES on the tender offer.
Bank Pariban privatization begins
The government of Brazilian state Paraiba began the prequalification stages for the 99.67% sale of Bank Pariban. The government will offer a 10% share of the sale to employees. Bank Pariba is one of six state banks Brazil’s central bank plans to privatize this year. Brazilian consulting firm Maxima & Rosemberg, international consulting firm Ernst & Young and law firm Azevedo Sodre have been appointed to manage the deal.