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Wednesday, July 29, 1998 Published at 21:34 GMT 22:34 UK

Business: The Company File

Brazil privatisation causes riot

The privatisation has caused a storm of protest in Brazil

Armed police in Brazil had to use tear gas, water cannons and riot sticks to fend off thousands of angry protesters, demonstrating against the government's privatisation of national telephone firm, Telebras.

Running street battles broke out in Rio de Janeiro between the 3,000 police who had been drafted into the city to protect the exchange and the demonstrators, which included trade union members and students.

Many protesters were injured and shots were reported to have been fired.

Nevertheless, the Brazilian Government pushed ahead with the sale Telebras to foreign bidders.

And the largest privatisation ever seen in Latin America proved to be a financial success, with the government raising $19bn, far exceeding its original hopes of $14bn.

Roger Nightingale, BBV Latinvest, on Telebras sale
Government lawyers had earlier raced to stop a wave of injunctions by trade unions aimed at stopping the sale.

They succeeded when a court in Bahia in Northern Brazil threw out the last two cases just before the auction was due to begin.

Phone service poor

[ image: Some demonstrators were injured in the riots]
Some demonstrators were injured in the riots
Brazil's telephone service lags behind the standard of Western countries. There are only 11.5 phones per 100 people, as compared to 66 per 100 people in the US. And 17 million people are still waiting for a phone line.

The government is hoping that the privatisation will bring extra investment of up to $45bn into the system, speeding up modernisation and raising standards.

Under the plan, the company has been split up into 12 subsidiaries which were each be sold on the Rio stock market.

There are eight mobile phone operators, three regional carriers, and one long-distance operator, called Embratel.

Foreign interest

The sale created intense interest from European and US buyers.

Spain's Telefonica seized the biggest prize, the lucrative regional franchise Telesp which covers the richest state of Sao Paulo, for just under $5bn, a 64% premium on the asking price. Telesp has one-third of all the telephone lines in the country.

It has consolidated its position in the market, already holding a controlling stake in the mobile operator CRT, based in the Southern state of Rio de Sul.

The company recently raised $2.83bn in a rights issue to fund its Brazilian acquisitions.

Also pleased is the American telecoms operator MCI, whose consortium Startel grabbed the Embratel long-distance company for $2.3bn, a 40% increase on the guide price of $1.6bn. MCI is merging with WorldCom to form a global telecoms giant.

"The winner is the government, and the loser is the political opposition," said Sergio Goldman, head of equity research for Santander Investment in Sao Paulo.

"But it looks very positive for all the market because of the foreign investment that it will bring in," he said.

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