As dawn broke, local time, The Israeli-Brazilian company GVT (Global Village Telecom) completed the pricing stage of its initial public offering in Brazil. Its timing was auspicious: Brazilian stocks soared to record heights on Wednesday, spurred by Fed chairman Ben Bernanke's comments suggesting that U.S. interest rates will not be raised soon.
The Bovespa index of the Sao Paulo Stock Exchange pierced 46,000 points for the first time. It finished at a preliminary record close of 45,859 points, up 1.46 percent.
As for GVT, it achieved a market cap of $1.2 billion and raised $480 million. Demand for its securities ran high, which boosted the share price to 18 Brazilian reals. Originally its pricing range had been between 11 Brazilian reals to 16 reals.
Although the offering took place in Sao Paolo, the pricing was actually conducted in New York, because most of the new investors in the company are Europeans and Americans, and the bodies handling GVT's initial public offering are international banks.
Credit Suisse and UBS were the main underwriters. The offering managers were JPMorgan, ABN, and the Brazilian financial group Espirito Santo.
GVT's main shareholders, which will be posting handsome capital gains today, include the Magnum investment fund, which is owned by Israeli and European investors, and none other than Nochi Dankner's IDB (TASE: IDBH) group. The contact between GVT and IDB was forged by Avi Fisher, vice chairman of IDB, who is also a member of GVT's board, and remains on the board after the public offering.
Post-IPO, Dankner group companies IDB Development Corporation (TASE: IDBD) and Discount Investment Corporation (TASE: DISI) will own 8.6% of GVT's shares, worth about $90 million. A top member of the IDB group commented, "We take our hat off before the GVT executive for its managerial ability and persistence."
GVT supplies Internet and telecommunications services throughout several regions in Brazil. It was founded in 1999 by the Israeli Shaul Shani, who serves as its chairman, by Amos Ganish, its CEO, and by Adi Marom, its financial manager.
When the hi-tech bubble burst around the turn of the millennium, GVT fell into trouble. It found itself unable to pay suppliers for the equipment it had bought to deploy a network. Among the equipment providers were Israeli companies ECI Telecom (Nasdaq: ECIL) and Gilat Satellite Networks (Nasdaq: GILT) , as well as several American companies.
However, as the sector began to rally, GVT reached arrangements with all the companies. Sources at the company relate that all the suppliers converted some debt into equity. Now that the company is publicly traded, all have received their money back in full, plus returns of some 125% on their investment, as it were.
Sources near the IPO, which was one of the most successful carried out in Brazil for years, commented that most of the investors were American and European institutional investors. Only 20% of the shares were sold to Brazilian investors and institutions.
GVT shares will debut on Friday, February 16, denominated in the Brazilian real.
GVT is considered a success story because of the speed at which it achieved positive operating cash flow (EBITDA) and positive cash flow from operations. Another parameter is the fact that GVT is the only company that received a license to compete with the Brazilian phone company, and that it survived the hard times in the global telecommunications market, not to mention the currency crisis in Brazil.
Other mirror companies, like the joint venture between Sprint and France Telecom, or the joint endeavor by Bell Canada and Qualcomm, either crashed and burned, or were sold. The gradual disappearance of these ventures from the Brazilian telecoms scene flattened the competition that GVT faces, facilitating its penetration of new regions.
GVT's business grew fast in recent years and unlike most of the IDB group telecoms companies, it seems to have vast prospects: Brazil is practically untapped land when it comes to broadband Internet penetration. The present penetration is believed to be about 12%.
The company's sales grew 17.5% in 2005 against the year before to $360 million. Its EBITDA grew 35% to $120 million or 33% of turnover, from 29% in 2005.
GVT is expected to generate $155-160 million operating income in 2007, on revenue of $420-$430 million.
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