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TREFICA OF HONDURAS

TREFICA OF HONDURAS. Andres Hernandez Sharon Udani Tianyuan Wang. COMPANY PROFILE. Trefiladora Centroamericana Production and commercialization of wire-related products Actively participates in the U.S., Mexican, Caribbean, South American and Central American markets

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TREFICA OF HONDURAS

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  1. TREFICA OF HONDURAS Andres Hernandez Sharon Udani Tianyuan Wang

  2. COMPANY PROFILE • Trefiladora Centroamericana • Production and commercialization of wire-related products • Actively participates in the U.S., Mexican, Caribbean, South American and Central American markets • Strategically located in Choluteca, Honduras

  3. LOCATION

  4. COMPANY PROFILE • Annual plant capacity exceeds 72,000 metric tons • Galvanize over 36,000 metric tons of wire • 8,400 metric tons in barb wire • 18,000 metric tons of wire rod and rebar

  5. PRODUCTS & BRANDS Chain-link fencing Nails High-resistance rebar

  6. EMERGING MARKET • Profit from a substantial economic growth based on • significant productivity gains • technological change • change in their economic philosophy • Frequently characterized by • political instability • strong currency turbulence • high foreign debt • High risk and return

  7. COMPANY BACKGROUND • Founded in 1969 • Sold to the Vente family in the 1980s • Virtual monopoly in Honduras, El Salvador and Nicaragua in the 1980s • Short-term, high interest loans to increase capacity in the 1990s • Main supplier LAEI acquired 45% ownership to lower interest

  8. OVERVIEW • Increasing losses and cash flow shortfalls • Foreign competitors • International competition • Family-owned business • Decision on capitalization and future • SELL or RESTRUCTURE

  9. Financing Resources Ownership & Control Foreign Competition Quality Standards Local Economy Marketing Strategy COGS ISSUES IMMEDIATE BASIC

  10. IMMEDIATE ISSUE MATRIX Importance LOW HIGH Urgency LOW HIGH

  11. BASIC ISSUE MATRIX Importance LOW HIGH Urgency LOW HIGH

  12. COMBINED ISSUE MATRIX Importance LOW HIGH Urgency LOW HIGH

  13. MARKET DOMINANCE 1984–1992 Running at Full Capacity Lack of Competition Virtual Monopoly High Tariffs High Import Duties

  14. EXPORTS Tariff Structure Opened Borders Exports Growth Government Exports Strategy Accelerated Local-currency Depreciation

  15. GLOBAL TRANSITION 1993-1996 Anemic Local Economy Illiquid Financial Sector International Quality Standards Borrow Locally Short-term Financing Opened Borders Additional Production Capacity Foreign Banks (Regional Political Risk)

  16. BORROWING LOCALLY No Foreign Banks High Inflation Rates High Political Risk High Interest Rates Devaluating Currency Illiquid Financial Sector

  17. INCURRING LOSS Reneged Government Aid Machinery Big Expansion Accounting Loss Reluctant Investors High Interest Loans

  18. PRECENT OF SALES COMPARISION

  19. ALTERNATIVES • Stay the course • Find a US partner • Sell control to a Mexican Supplier • Sell control to LAEI

  20. Pros 55% ownership Maintain control Wait for better opportunities Cons Too much high interest debt Potential loss of market share Potential bankruptcy 1. STAY THE COURSE

  21. Pros Maintain control Access to U.S. financial markets Increase in U.S. market share Rationalizing production Cons Loss of 20% ownership Not enough investment to relief debt burden 2. FIND A U.S. PARTNER

  22. Historical Interest Rates

  23. Pros $4 million investment to relieve debt burden Cheaper COGS Stay competitive in Central America Cons Loss of 21% ownership Potential loss of Presidency 3. SELL CONTROL TO A MEXICAN SUPPLIER

  24. Pros Walk away with $ 5 million Cons Complete loss of ownership & control Possibly bring shame to the family 4. SELL CONTROL TO LAEI

  25. DECISION CRITERIA • Market Accessibility • Ownership & Control • Debt Structure

  26. MARKET ACCESSIBILITY

  27. OWNERSHIP & CONTROL

  28. OWNERSHIP DISTRIBUTION

  29. EQUITY VALUE Common Shares in Lempiras 85,000,000 Exchange Rate (Lempiras/USD) 13.50 Common Shares in USD 85,000,000 / 13.50 = $6,296,296.30 % Equity Sold (True)Value: U.S. Partner $6,296,296.30 * 20% = $1,259,259.26 Mexican Supplier $6,296,296.30 * 66% = $4,155,555.56 Sell to LAEI $6,296,296.30 * 55% = $3,462,962.65

  30. EQUITY

  31. PROPOSED DEBT STRUCTURE

  32. PREFERRED ALTERNATIVE

  33. IMPLEMENTATION • Let U.S. Partner invest 20% equity • Pay off short term debt • Long term debt with lower interest rate • Rationalize production

  34. QUESTIONS?

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