Bidding on Mexican Phone Firm to Start

IXTAPA, Mexico —  Controlling interest in Mexico’s telephone company goes up for sale today, with bidders being asked not only to be prepared to eventually post a $50-million bond, but also to prove that they are solvent and have a knowledge of telecommunications.

The Treasury Ministry, responsible for selling the government’s 56% interest in Telefonos de Mexico, announced those terms Sunday, on the eve of the opening of the National Banking Convention in Ixtapa. It will accept bids on 51% of its shares and sell the other 5% on the stock exchange.

The government has said that it expects to sell about half of the 51% that it is putting up for bid to foreign interests and half to Mexican.

The sale of the government’s interest in Telmex, as the company is known, is part of an eight-year-long privatization movement that has resulted in the sale of hundreds of government-owned companies--from airlines to sugar mills.

After the sale of Telmex is completed--the target date is the end of this year--the government expects to begin selling state-owned banks.

Mexican officials have repeatedly refused to place a price on the telephone company, saying only that its shares are currently valued at $8 billion. About one-fourth of the company’s stock trades on the American Stock Exchange in the form of American Depository Receipts, which are similar to stock. The rest of the shares that are not owned by the government trade on the Mexican Stock Exchange.

The company reported a $1-billion profit last year and generally is considered to have huge growth potential. Mexico has only 5.5 telephone lines per 100 inhabitants. Other countries in a similar stage of development have about 20 lines per 100 residents.

However, the company has tremendous problems with antiquated equipment and a union with a reputation for militancy.

Further, there aren’t as many potential buyers as might be expected.

One of the most lucrative parts of the business is international calls between the United States and Mexico. However, the U.S. regional telephone companies that were formed by the breakup of American Telephone & Telegraph have shown only lukewarm interest in the sale because they are forbidden from participating in the U.S.-Mexican long distance business by the judicial decree that created them.

Another stumbling block is that many other government-owned telephone companies around the world are also up for sale concurrently. And while other governments are extending credit to potential buyers, the Mexican government is insisting on cash.