Telefonica de Argentina begins exchange offers

New York, June 17 - Telefonica de Argentina SA announced that it had begun an offer to exchange two new series of debt, plus a cash payment, for two series of its own existing notes, and to exchange new notes and debt for two series of existing notes issued by its holding company - Compania Internacional de Telecomunicaciones SA (Cointel, as it is commonly known).

Telefonica, a Buenos Aires, Argentina-based telecommunications company, is also soliciting proxies from the holders of the Telefonica and Cointel existing notes which are subject to the exchange offers, to amend or eliminate substantially all of the covenants and events of default contained in those notes.

The company set a proxy delivery deadline of 5 p.m. ET on June 30, and said the various exchange offers would expire at 11:59 p.m. ET on July 15, 2003, with all deadlines subject to possible extensions.

Telefonica is offering those holders of its own existing $300 million of 11 7/8% notes due 2004 who tender their notes by the proxy delivery deadline $850 principal amount of newly issued 11 7/8% notes due 2007 and $150 in cash (including a $75 proxy payment) per US $1,000 principal amount of existing notes tendered.

It is offering existing 11 7/8% noteholders who tender after the proxy deadline $925 principal amount of newly issued 11 7/8% notes due 2007 and $75 in cash per $1,000 principal amount of existing notes.

Telefonica is offering those holders of its own existing $368.5 million of 9 1/8% notes due 2008 who tender their notes by the proxy delivery deadline $900 principal amount of newly issued 9 1/8% notes due 2010 and $100 in cash (including a $50 proxy payment) per $1,000 principal amount of existing notes tendered.

It is offering existing 9 1/8% noteholders who tender after the proxy deadline $950 principal amount of newly issued 9.125% notes due 2010 and $50 in cash per $1,000 principal amount of existing notes tendered.

Telefonica is offering those holders of Cointel's existing $225 million of 8.85% series A notes due 2004 who tender by the proxy delivery deadline $850 principal amount of newly issued Telefonica dollar-denominated 8.85% notes due 2011 and $150 in cash (including a $75 proxy payment) per $1,000 principal amount of existing 8.85% notes due 2004 tendered

It is offering existing 8.85% noteholders tendering after the proxy delivery deadline $925 principal amount of newly issued Telefonica dollar-denominated 8.85% notes due 2011 and $75 in cash per $1,000 principal amount of notes tendered.

And it is offering those holders of Cointel's existing 175 million Argentine pesos of 10 3/8% peso-denominated series B notes due 2004 who tender by the proxy delivery deadline the choice of EITHER the dollar equivalent of Ps. 850 principal amount of newly issued Telefonica U.S. dollar-denominated 8.85% notes due 2011 (calculated using the forward exchange rate as described in the relevant prospectus related to the exchange offer) and Ps. 150 in cash (including a Ps. 75 proxy payment) OR Ps. 850 principal amount of newly issued Telefonica peso-denominated conversion notes due 2011 and Ps. 150 in cash, including a Ps. 75 proxy payment), per Ps. 1,000 principal amount of existing 10 3/8% notes tendered.

It is offering holders of existing Cointel 10 3/8% notes who tender after the proxy delivery deadline EITHER the dollar equivalent of Ps. 925 principal amount of newly issued Telefonica dollar-denominated 8.85% notes due 2011, (calculated using the forward exchange rate as described in the prospectus), and Ps. 75 in cash, OR Ps. 925 principal amount of newly issued Telefonica peso-denominated conversion notes due 2011 and Ps. 75 in cash per Ps. 1,000 principal amount of existing 10 3/8% notes tendered.

Telefonica said the new conversion notes will be initially denominated in Argentine pesos and accrue interest at 10.375% until Aug. 1, 2004. Thereafter, the new conversion notes will be denominated in dollars and accrue interest at 8.85%.

The principal amount of the new conversion notes will be converted from pesos into U.S. dollars at the average reference spot exchange rate quoted by the Argentine Central Bank for the last five available trading days ending on or prior to July 30, 2004.

Telefonica further said that its existing 9 7/8% notes due 2006 that were issued last year are NOT part of the exchange offers.

The company also announced that it had agreed with its main indirect shareholder, Telefonica Internacional SA, that immediately after the consummation of the exchange offer for the Cointel notes, Telefonica Argentina will transfer all of the acquired Cointel notes to Telefonica Internacional in exchange for a like reduction of Telefonica Argentina's short-term indebtedness owed to Telefonica Internacional. As a result of the proposed overall transaction, Telefonica Argentina will not be increasing its net debt position.

Holders who tender their notes will receive any accrued and unpaid interest up to, but not including, the settlement date for the exchange offers for those existing notes.

The exchange offers are subject to customary conditions, which Telefonica may waive, including the condition that 90% of the outstanding principal amount of each series of existing notes be validly tendered prior to the expiration date of the exchange offer.

None of the exchange offers is conditioned upon the success of any other exchange offer. Should less than all of the exchange offers be consummated, Telefonica may accept for exchange those notes that are tendered in those exchange offers where all of the conditions to such exchanges have been met or waived by the company.

Morgan Stanley & Co. Inc. (including its affiliates) will act as dealer manager for the exchange offers (call Simon Morgan at 212 761-2219 or Heather Hammond at 212 761-1893).

BBVA Banco Frances SA (+54 11-4346-4600) will act as solicitation agent in Argentina,

D.F. King & Co., Inc. (800 549-6697 or +1 212 269-5550) will act as the information agent and the Bank of New York will act as the exchange agent for the exchange offers.

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