(FORTUNE Magazine) – Looking for opportunities in privatization of state-owned enterprises? Don't assume that you are limited to Eastern Europe. In one of the largest such deals in Latin America ever, the Mexican government is selling its 56% stake in the national telephone company, TELEFONOS DE MEXICO, known as Telmex. The stock, which trades over the counter as an ADR in the U.S., has caught the attention of many international fund managers. Says John Ford of the T. Rowe Price International Fund: ''Telmex is our favorite stock in all Latin America.'' Adam Holiber of D.A. Campbell, a California investment firm that pays special attention to Latin America, thinks Telmex's profits will rise 130% this year, partly because of a new tariff structure put in place last January. It should then grow by about 25% annually for at least the next four years. At a price/earnings multiple of seven times 1990 estimates, that's not a bad bet. With only five phone lines for every 100 persons (vs. 50 in the U.S.), the market has lots of room to grow. Nervous investors beware, though. In late June, Telmex stock stumbled a bit after the announcement of a complex recapitalization plan designed to ensure domestic control of the company as required by Mexican law. By the end of this year, the government will sell a controlling block of shares to a group + consisting of Mexican investors and a foreign telecommunications operator, still to be named. At the same time, it will create a new class of stock with limited voting rights called International or L shares to be distributed as a special dividend. Shareholders will get 1.5 shares of L stock for each Telmex share or ADR they hold. Telmex will then list the new L shares as ADRs on the New York, London, and Tokyo stock exchanges. The original ADRs will continue to trade in the U.S. over the counter but will be convertible to the new issue. Though the stock has already risen 115% this year, Leonard Hyman, an analyst at Merrill Lynch, believes it can go up another 25% to 50% over the next year or two. And he considers his forecast conservative. Ole!

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: A GOOD BET IN LATIN AMERICA