(Bloomberg) -- A rally in the bonds of Chile’s WOM stalled this week after the mobile phone operator, which filed for bankruptcy seven months ago, failed to entice additional takeover bids to the one it had already announced.
In a statement Tuesday, WOM said no other companies had made an offer, but the party that made the initial bid had improved its proposal. That group is made up of bondholders including BlackRock Inc., Moneda and Amundi SA, according to a person familiar with the matter. Their so-called stalking horse bid was announced on Nov. 1.
Should the group push ahead with the takeover, it will have to appoint someone to operate WOM and decide on a strategic direction for the company, as well as a financial exit strategy. That raises more questions than a takeover by a rival mobile phone operator in Chile, said Eduardo Ordonez, a debt portfolio manager at BI Asset Management in Copenhagen.
It’s “less clean than having a proper market player taking over,” Ordonez said. “It’s not bad, but leaves some questions open for the medium term in terms of what the next steps would be and their timing.”
The new owners probably wouldn’t hold on to WOM indefinitely, he said. Representatives for BlackRock, Moneda didn’t reply to requests for comment, while Amundi declined to talk on the matter.
“They are not in the business of owning and running companies,” Ordonez said. “So they would need to find a way to shed their ownership at some point and pass it on to a plain vanilla operator.”
Bondholder Payback
WOM’s bonds due 2028 rose 1.5 cents on the dollar to 62.5 in the month through Friday, returning 3.53%, the best performance among Chilean corporate debt, according to data compiled by Bloomberg. After the company failed to attract other buyers, the bonds — which have become less liquid amid the restructuring process — pared those gains.
“This offer was already internalized in the bonds,” said Juan Djivelekian, an analyst at Balanz Capital Valores.
The bondholders, should they take over WOM, are likely to demand that each time the restructured company produces cash, the creditors get paid out much of that money, Ordonez said.
The bondholder proposal includes $500 million in new investment in WOM, which it values at $1.6 billion, according to the statement released earlier this month. About $200 million of that investment will be used to repay the debtor-in-possession financing, but there is no additional information as to where the other $300 million will go. There were no details this week on how the bid was improved.
“I would expect that a large part of the current 2024, 2028 bondhoders are financing this $500 million in order to help the company do better, and in turn to have a greater value recovery on their bonds,” said Djivelekian.
Cutthroat Competition
WOM’s failure to attract other bids indicates that competition in Chile’s mobile phone market will remain cutthroat.
The company had muscled its way into the market over the past decade by undercutting competitors and conducting an unconventional marketing campaign. WOM has about a fifth of the market share for mobile phones in Chile, topped only by Movistar, a unit of Spain’s Telefonica SA, and Entel SA, according to data through June collected by the local regulator. ClaroVTR, which is controlled by Mexican billionaire Carlos Slim, trails in fourth place.
“Credit investors would probably be more excited by a purchase from other players in the market as the collapse in profitability for all players suggests consolidation is in order,” Ordonez said. That would particularly had been the case if the winner had been a blue chip name like Slim’s America Movil, he added.
America Movil raised its stake in ClaroVTR to 91% from around half earlier this year after partner Liberty Latin America opted not to inject fresh cash into the troubled company. Bonds in ClaroVTR were trading in distressed territory until April.
“ClaroVTR’s recovery could be slow, though VTR might have further rating upside, depending on America Movil’s plans in Chile and support for VTR,” said Sharon Chen, a Bloomberg Intelligence analyst. Still, “mobile competition could remain intense and this may lead to downgrade pressure for Entel and Telefonica Moviles Chile.”
The prospect of continued fierce competition in Chile’s mobile phone market means WOM’s deep-rooted issues will remain.
“In the medium term, I can’t imagine WOM being all that profitable,” Djivelekian said. “There are problems that the company will continue to have, taking into account the competitive level in Chile and the financial backing that all the other players have.”
©2024 Bloomberg L.P.