Mexico's Growth Sectors
Thurston, Charles, Global Finance
With ambitious financings and strong players, media and telecom, food and beverages, and infrastructure are fueling Mexico's rise.
The competition is becoming more intense in Mexico's media and telecommunications sectors now that such major players as Telmex and Iusacell have opened their war chests to invest in the latest technology. Buoyed by rapid growth in a still underserved market, these and other companies are spending billions of dollars to gain a competitive technological edge.
The biggest spender in this silicon skirmish is Telmex, the largest telecom service provider in the country. Carlos Slim Helu, Telmex's chairman and the wealthiest businessman in Latin America, recently announced a plan to invest $4.6 billion to go digital and to augment its customer base. Apart from aggressively expanding its fixed-line and mobile services, Telmex became the largest Internet service provider earlier this year through an investment stake in Prodigy. Given its rapid growth, the company should have little problem funding its strategy. "We expect the net profit to increase by 22% this year," says Lars Schonander, an equity analyst at Santander.
Among the many competitors of Telmex, Grupo Iusacell is the strongest. It is also in the midst of investing $600 million to convert its equipment to the digital standard, says Fulvio del Valle, the president of the mobile service provider. To pay for the second half of its technology upgrade, Iusacell is aggressively pursuing new subscribers: New customer growth was up 70% during the second quarter, compared with the same period in 1998.The company also converted its stock and offered additional purchasing rights to existing shareholders in early August, successfully raising $150 million. More capital is needed. "By the end of 1999 we'll go to the highyield markets and issue a bond at the level of $130-150 million. That will guarantee our cap-ex demand through 2000," says del Valle.
On the media side the fight to get lean and mean is raging, with market leader Televisa emerging stronger this year, following the late1998 launch of its broad costcutting plan and investments in its satellite-to-consumer business. Much of its debt is in the form of 1996 yankee bonds. "There is a possibility of refinancing, but with the restructuring of the company, we have higher priorities," says Francisco Leon, investor relations officer.
With Televisa's strategy to defend its 78%-plus market share well under way, rival TV Azteca is not shying away. "TV Azteca has felt the full impact of its ratings decline and higher costs required to compete more effectively with Televisa," says Santander's Schonander. But financing for the media and telecommunications technology war may not be all that difficult to arrange. "These companies have suppliers that are falling all over one another trying to sell equipment. Suppliers are giving 100% financing plus import duties just to get the business," says John Detmold, the chairman of Banca Quadrum.
Consumer spending is also on the rise, thanks to the recovering economy and a more stable peso, and the country's food and beverage makers are reinvesting profits to expand their capacity to meet the rising demand.
"We were one of the two Mexican companies with real earnings growth last year, along with La Moderna. Our operating margins increased by 22%," says a financial officer at Grupo Modelo. The brewer of Corona beer, America's largest …
Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Article title: Mexico's Growth Sectors. Contributors: Thurston, Charles - Author. Magazine title: Global Finance. Volume: 13. Issue: 9 Publication date: September 1999. Page number: 107+. © Global Finance Media Inc. Feb 2009. Provided by ProQuest LLC. All Rights Reserved.
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