Hondutel Still An Unattractive Investment
The Uruguayan government reportedly submitted a formal proposal for the partnership and capitali s ation of Honduras' state-owned telecommunications company, Hondutel . Consultations on the exact arrangements are due to take place in H213 , although it is believed Uruguay's state-owned telecoms company, Antel , would acquire 51% of Hondutel. An unsuccessful attempt to auction the mobile unit of Hondutel, Ehmovitel , took place in December 2012, but the joint venture failed to attract investment. BMI believe s investment in Hondutel is fraught with risks and Antel would be hard-pressed to turn the company around.
A memorandum of understanding was signed by Uruguayan f oreign m inister , Luis Almagro , and Honduran f oreign m inister , Arturo Corrales, ' to establish a mechanism of political consultations between the two countries. ' In January 2013, the Honduran government approved a direct intervention into Hondutel, to manage and be the top decision-making body for 120 days, in an attempt to save the company from its financial crisis. The MOU between the two f oreign m inisters of Uruguay and Honduras, would appear to be part of a larger political deal , but is evidence of the direct control the government now exerts over Hondutel. Previous joint ventures for Hondutel would only concede 49% of the company to foreign ownership . H owever, the government has overruled the board of directors by allowing 51% to be up for sale, therefore making it a more attractive investment. However, Hondutel is estimated to be losing US$1mn a month , with an operating deficit of US$18mn.
|A Pre-Eminence Of Prepaid|
|Postpaid Vs Prepaid Total Subs (LHS), Growth % (RHS)|
Antel has long-held aspirations to expand into other Latin American markets and was rumoured to be interested in the December 2012 unit auction, ( see our online service, December 12 2012 'Hondutel Looking For Serious Investor' ). In the article, we highlighted the risks to potential investors; high levels of prepaid subscribers, low purchasing power and poor outlook for 3G/4G services. The acquisition of Digicel's operations by Claro , leaves a duopoly at the top of the mobile market, which will make it difficult for Antel to carve out market share. We estimate Ehmovitel has less than 3% of mobile subscribers and will require significant financial resources to challenge Claro and market leader, Tigo .
The markets of Uruguay and Honduras differ greatly as Uruguay's strong macroeconomic factors have led to investment in telecoms infrastructure and high demand for advanced technology. We estimate postpaid subscriptions account ed for 31% of total subscribers in Uruguay at the end of 2012, compared to just 7% in Honduras. In the fixed-line and broadband sectors, Antel has enjoyed a legalised monopoly in its domestic market , but will face competition in Honduras, where penetration of these technologies is among the lowest in Latin America due to high costs and lack of demand.
Furthermore, our Country Risk team believe Honduras' poor macroeconomic fundamentals and high levels of political instability and corruption could lead to a spike in yields and forecast the country's fiscal deficits to remain sizeable. Purchasing power is likely to remain low, which will make it difficult for Antel to encourage demand for broadband or 3G services. An investor in Hondutel will need to address the US18mn operating deficit , while upgrading the country's telecoms infrastructure, made difficult by Honduras' geography. Even with a 51% stake on offer for Hondutel, the company is an unattractive investment and may be beyond saving.