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Sherritt sells its 40% stake in Cubacel back to government
CubaNews / October 2003

By Larry Luxner

Bucking the worldwide trend toward privatization, the Cuban government has retaken 100% control of Teléfonos Celu-lares de Cuba S.A. (Cubacel), the island’s dominant mobile phone network.

In early September, Sherritt International Corp. announced that it was selling its 40% indirect interest in Cubacel back to the Castro government.

The $43 million purchase by Telefónica Antillana S.A., an obscure Cuban government agency, consists of an initial payment of $10 million and a series of quarterly payments ex-tending until August 2007. Interest will be paid on outstanding amounts at 6% a year. Sherritt will receive 80% of its selling price, with the remaining 20% going to minority partner TIMSA of Mexico, which had owned 10% of the company.

Company spokesman Ernie Lalonde told CubaNews that the deal “was really the prerogative” of the Cuban government.

“The government had a desire to restrucure its telephone business, and we entered into a dialogue with them,” he explained in a phone interview from Sherritt headquarters in Toronto. “In our negotiations, we struck an arrangement that we found was suitable for us. This is the result.”

For now, virtually all of Cubacel’s 8,000 permanent customers are foreign diplomats, senior government officials and top executives of empresas mixtas, or joint ventures between Cuban state entities and overseas investors.

Cubacel itself began as an empresa mixta, created in December 1991 by the Cuban government and Mexican entrepreneur Luís Miguel Niño de Rivera. At that time, the company was granted a 20-year exclusive concession to provide both analog and digital service within the 800-MHz band throughout Cuba.

Cubacel’s president is Niño de Rivera, and its managing director is Cuban national Rafael Galindo. Until now, the other top Cubacel officials worked directly for Sherritt, which paid $38.2 million for its share of Cubacel in 1998.

Attempts to reach Galindo at Cubacel’s Havana headquarters weren’t successful, and Sherritt itself has never disclosed much information about the company. However, in 2001, the latest year for which statistics are available, Cubacel reported profits of $6.7 million on revenues of $24.1 million.

In its 2001 annual report, Cubacel prided it-self on the company’s 36% average profit margin and 39% return on equity, which dwarfed the 8.2% profit margin and 21.8% average return on equity earned by the top 10 U.S. telecom firms that year.

Lalonde conceded that Cubacel was “certainly a profitable enterprise” for Sherritt — but if it was so profitable, why would Sherritt get out of the telecom business?

The spokesman declined to answer that question directly, telling us only that “we found the Cuban government’s request reasonable.” He also denied that the sale had anything to do with Sherritt’s extensive investments in Cuba’s energy, mining and tourism sectors, saying the two “weren’t linked.”

The deal could be linked, however, to the Cuban government’s plans to merge Cubacel and fixed-line monopoly Empresa Nacional de Telecomunicaciones de Cuba S.A. (Etecsa) into a single entity covering both services.

At the moment, Etecsa is owned 29% by Telecom Italia SpA and operates approximately 650,000 fixed-line phones throughout Cuba.

Not much is known about these talks, which have been going on for half a year and reportedly involve Celulares del Caribe (C-COM), a small GSM network. Telecom industry sources say the Cuban government is seeking effiencies with an eye to eventually making mobile phones available to at least part of the population.

Recently, Brazil offered Cuba a $60 million medium-term credit to buy Brazilian-made Ericsson wireless equipment.

“It’s much cheaper to develop a wireless system. After the merger I think they’ll begin deploying one for the population,” a telecom executive told Reuters in a story published by CubaNews in March.

The merger could also solve turf-related licensing issues and create efficiencies, as mobile networks use Etecsa facilities across Cuba instead of building their own.

At present, it’s illegal for ordinary Cubans to have cellphones, unless it is absolutely necessary for their jobs. Besides, Cubacel’s average tariff of $120 a month in hard currency is more than many Cubans earn in a year.

Sherritt, meanwhile, is boosting its non-telecom investment in Cuba. The company is investing $50-60 million this year in oil and gas expenditures. It also runs, with the Cuban government, one of Cuba’s largest nickel mines, and has interests in two hotels, a soybean processing plant and a small agribusiness venture.

As of Jun. 30, 2003, Sherritt’s capital assets in Cuba come to C$470 million ($343 million), or about 36% of its worldwide assets of C$1.3 billion ($950 million).

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