Velecom Rakes In $250M Placement, Largest LatAm Telecom Financing

VeleCom Inc., an international broadband telecommunications company, received the largest venture capital financing in Latin America telecom history when it secured a $250 million placement from several investors this month. This latest round of financing brings VeleCom’s total private equity capitalization to $365 million.

Lead investors in the placement, which took six months to complete, included existing VeleCom shareholders Telecom Partners, Centennial Funds, Crescendo Ventures, SLI SA and Formus Communications International.

It also brought in new investors Banc of America Equity Partners Latin America, Mellon Ventures, GCC Investments and First Union Capital Partners. Also taking part in the placement were Qualcomm Inc., which is strategic partner of Velecom in Brazil), Toronto Dominion Capital, Dolphin Communications Fund, Northwood Ventures, CRI Media Partners, Janco Capital Management and Brad Peery Capital.

Lehman Brothers led the private placement, which was co-managed by TD Securities and Donaldson, Lufkin & Jenrette Securities Corp.

“We had three co-managers for the deal because of its size, but also because each of the banks brought their respective abilities and contexts,” said VeleCom chief financial officer Barry Rowen. “Lehman advised the Brazilian government in part of its privatization process, and is familiar with the telecom market. TD Securities is focused exclusively on media and telecom. And DLJ is [also focused] on telecom, and knows the high-yield market.”

The new funds will be used to build VeleCom’s broadband networks in Brazil and Argentina.

“Our mission is to be the premier provider of voice, data video and Internet services throughout underserved markets in Latin America,” Rowen said. “Those are the opportunities: To use voice as a platform to expand into data, to use our licenses, to be an integrated service provider.”

Indeed, over the past few months, VeleCom has increased its market presence beyond Brazil to Argentina, Colombia, Peru and Uruguay through the acquisition of the Latin American assets of broadband wireless access providers Formus Communications International, Argentina-based SLI Wireless SA and Brazil-based Taquari Participacoes SA. Additionally, VeleCom is partnered with Bell Canada International Inc. (BCI) and Qualcomm, two facilities-based local exchange carriers in Brazil that provide service under the brand name Vesper. BCI is the operating partner in Vesper.

Telecom Fever Spreads South

Investors said they were excited about the telecom opportunities in the region, particularly Brazil, which is the eighth-largest economy in the world, but ranks 82nd in terms of teledensity. Michael Gray, assistant vice president of First Union Capital, the private equity arm of First Union, called it the last great opportunity.

“We look forward to developing the infrastructure there and being part of that,” he said. First Union Capital Partners has $1.5 billion under management. VeleCom represents its third investment in Latin America, and Gray said 30% to 40% of First Union Capital’s portfolio is invested in telecom. Its parent, First Union, is the sixth-largest bank in the U.S.

Jacques Gliksberg, managing director of BancAmerica Equity Partners, said that existing shareholders invested half of the $250 million infusion, and new investors contributed the balance.

“We led the group of new investors,” he said. “We believe in the new economy of convergence telecom.”

He went on to explain how investing in VeleCom fits in with BancAmerica’s Latin American strategy. “The opportunities that exist in the Latin American broadband telecom market are very attractive. We’re now in the top four to five telecommunications markets in Latin America. VeleCom, like MexCom, is involved in voice and data transmissions.”

Mexico-based MaxCom, formerly known as Amaritel, began operations in April of last year, and is the first competitor of TelMex SA, which had been the monopoly provider for that country. BancAmerica invested $20 million in the project and is its largest shareholder.

The recent AOL-Time Warner merger underscores the importance of broadband access to Internet growth, and Gliksberg explained infrastructure and the service-side of the Internet is where BancAmerica is placing its chips.

BancAmerica Equity Partners has opened an office in Sao Paulo and is in the process of setting up another in Buenos Aires in order to continue to expand its private equity investment base here.

VeleCom’s Rowen concluded, “We’re cognizant of the macroeconomic factors that have contributed to the volatility in the region, But we believe the pent-up demand [for telecommunications] and emerging market growth offset the risks. Latin America is also less competitive compared to other parts of the world, so there’s better opportunity to get in at better valuations.” VeleCom was formed in June 1998 under the name WLL International Inc.