Compania De Telefonos De Chile Case Analysis and Summary Writeup

Compania de Telefonos de Chile Case Analysis And Summary Writeup

CTC’s Privatization

CTC was helped by Bond Group’s ownership after privatization. Soon after the acquisition, CTC embarked on an aggressive expansion to add 600,000 lines of service by the end of 1992, and Bond Group began to implement some other tactics that would further develop the company.

It makes sense for Chile to have selected Bond Group’s bid. Most importantly, Bond Group offered an all-cash bid, while other bidders offered distressed Chilean debt securities whose capital raised is not guaranteed Furthermore, other interested buyers only offered distressed Chilean debt securities as payment, which means it has high default risk.

CTC’s External Funding Needs

For the next three years, CTC implemented an aggressive expansion and the most viable source of financing is Chilean Bank loans. Compared with other funding sources, it is time-saving and probably gets enough money from banks. As to the next 7 years, CTC’s external funding needs primarily come from its further line expansion targeting to 1.7 million by 1996. It is supposed that ADR would be a better choice since it can help CTC raise more money.

American Depository Receipt (ADR)

ADR is a negotiable certificate issued by a U.S. bank representing a specified number of shares in a foreign stock traded on a U.S. exchange, although the actual shares are deposited in a custodian bank located in the issuer’s home country. Level I ADRs are less regulated and do not have to comply with GAAP and SEC requirements, while Level II and III have to comply with GAAP and SEC with different requirements. U.S. investors can diversify their portfolio risk across international boundaries and ADR has proven to be convenient and trustworthy.