Billionaires Dig Deep to Save Chile’s VTR, But Doubts Remain

Published 15 January 2024, 10:00:00.0 GMT
By Carolina Gonzalez

(Bloomberg) -- Billionaires Carlos Slim and John C. Malone fueled an impressive rally in the bonds of their Chilean telecommunications joint venture with a pledge to invest as much as $1.1 billion. Now the buzz is wearing off as investors turn back to the grim long-term outlook.

VTR Finance NV’s $483 million of bonds due 2028 have soared 11.1 cents on the dollar to 36.8 cents since the announcement was made on Dec. 26. Another $866 million of bonds with a higher ranking in the capital structure are now trading at about 59 cents on the dollar, up more than 10 cents in the same period.

America Movil, owned by Slim, and Liberty Latin America, controlled by Malone, said the new capital would be paid through June 30 to ClaroVTR, their joint venture that controls VTR Finance. The money would finance investment and repay some bank debts, according to a filing to the SEC. Problem is, the company’s problems are so deep and competition in Chile’s telecommunications industry is so fierce that it isn’t out of the woods yet, according to Lucror Analytics credit analyst Sebastian Hofmeister.

“It essentially gives the company more time to work on the turn around of its business,” Hofmeister said. But it’s not clear if that “turn around will be strong enough to avoid a debt restructure, especially for the subordinated VTR Finance bonds.” Even after the capital injection and the rally in the bonds, the notes remain in distressed territory, yielding 35.5% and around 20%, indicating the bondholders still expect the company to restructure its debts.

Staying Afloat

“The only thing that keeps bonds at a ‘reasonable’ price is the support of the owners,” said Juan Djivelekian, lead TMT analyst at Balanz Capital in Buenos Aires. “Without that support, the situation would be much more dramatic.” VTR Finance posted a net loss of 66.2 billion pesos ($72 million) in the third quarter compared with a profit of 1.1 billion pesos in the year-earlier period, according to the company’s financial statement. Negative cash flow from operations expanded to 14.3 billion pesos in the nine months ending on September 30 from 4.4 billion pesos over the same period in 2022.

America Movil, ClaroVTR and Liberty Latin America declined to comment for this report.

Cut-throat competition in the telecom industry has 2024 bonds in rival WOM SA trading at 69 cents on the dollar and Empresa Nacional de Telecomunicaciones’s 2032 bonds at 80.5 cents.

“The injection was necessary given the company’s high leverage and amortizations in the short and medium term,” Lima-based Seminario y Cia SAB analyst Sebastian Cruz said. Now, “we need to see the fit between the injection of capital and the liabilities and expected investments.”

Still, the capital injection shows the continued support of the shareholders, two people with very deep pockets, Cruz added. Slim has a net worth of about $102 billion, with America Movil posting an estimated $48.4 billion of revenue in 2023.

Meanwhile, Malone, worth $8.9 billion, has stakes in Warner Bros Discovery Inc., home of HBO and CNN. 

Taking Control

In the rush to save ClaroVTR, America Movil may take over a majority stake in the company that supplies mobile phone services, broadband Internet, cable TV and fixed-line telephony.

From the SEC filing, America Movil seems to be injecting most of the cash but it’s not clear how much more it is committing compared with Liberty Latin America, Djivelekian said. Once America Movil’s convertible bonds have been turned to shares, it’s not clear Liberty Latin America will exercise its so-called catch-up rights to maintain its 50% stake.

“The language around protection of minority interests and structure below 50% indicates there is a possibility that Liberty Latin America won’t put more money in to maintain the 50:50 setup,” Hofmeister said.

America Movil has a more strategic interest in Chile and is the stronger of both companies, so an increase in control from the Mexican telecom company would be an upside for the bonds, the Lucror analyst added.

Still Djivelekian does not see prices for VTR bonds rising further. “There are still many questions,” he said.

--With assistance from James Attwood.