UK-based power company National Grid is selling off its stake in Silica Networks.
The UK’s National Grid is finding times hard in Latin America. Eight years since entering the market, the company is taking an exceptional GBP290 million charge to write off the value of its telecoms business in Latin America. The unit failed to repeat the success of its European counterpart Energis.
National Grid is looking for further funding for its telecoms joint venture in Brazil, Intelig. This could be through issuing new equity, reducing its stake or pursuing an outright sale. Intelig is 50%-owned by National Grid, with the remainder split equally between France Telecom and Sprint Corp. Each of the three companies have agreed to sell a stake to a new partner, although it has not yet been agreed what size the stake should be.
National Grid is also selling its 50% stake in Silica Networks, which is a joint venture with Williams Communications Group and has suffered both from the telecoms downturn and particularly from Argentina’s recession. National Grid’s Chilean joint venture Manquehue Net, a joint venture with Williams and MetroGas, has also been hit by the general economic downturn.
Latin America has proven to be a much tougher market for National Grid than Europe. This has been because of the difficulty in securing vendor financing, or getting the telecoms equipment manufacturers to lend money to operators to finance the cost of purchasing new equipment. Deals with the likes of Nortel and Alcatel in Latin America fell down at the last minute, leaving National Grid having to take these costs itself.
The company will now focus on utilities in North America. The acquisition of Niagara Mohawk, which should be completed in early 2002, will lead to around 60% of the company’s earnings coming from the US. Investments in the US are expected to yield higher returns than in the UK, with pretax returns of 10.5% predicted by March 2005, about twice the return it can make in the UK.
