Fitch Affirms Telefonica del Peru's IDR at 'BBB+'; Outlook Stable

lunes 11 de mayo de 2015 14:49 GYT
 

(The following statement was released by the rating agency) CHICAGO, May 11 (Fitch) Fitch Ratings has affirmed the following ratings for Telefonica del Peru, S.A.A. (TDP): --Foreign and Local Currency Issuer Default Ratings (IDR) at 'BBB+'; --PEN375 million senior unsecured notes due 2016 at 'BBB+'. The Rating Outlook is Stable. KEY RATING DRIVERS TDP's ratings reflect the company's dominant market positions in the Peruvian telecom industry and robust cash flow generation from its fully integrated fixed-line and mobile operations, which have supported its strong financial profile, mainly its low leverage for the rating category. The ratings also reflect its linkage with the parent, Telefonica SA (TEF, IDR 'BBB+'; Outlook Negative), and its impact on TDP's financial strategy. The ratings are tempered by intensifying competition, especially with new entrants' aggressive marketing efforts, and the growing industry maturity, which have led to the company's profitability deterioration. Solid Financial Profile: Fitch forecasts TDP's net leverage to remain low for the rating category over the medium term, with its adjusted net leverage below 1.0x. TDP has continued to improve its financial profile backed by its robust positive free cash flow (FCF) generation, which has mostly been used to pay off the debt. During the three years from 2012 to 2014 the company reduced its net debt by PEN1.7 billion to PEN1.4 billion at end-2014 from PEN3.1 billion at end-2011, in the absence of any sizable shareholder distribution. During same the period, adjusted net leverage declined to 0.5x from 1.1x. Strong Cash Flow Generation: Fitch forecasts TDP's cash flow generation to remain robust over the medium term and help support its conservative financial profile. The company continued deleveraging during 2014, as cash flow from operations (CFFO) of PEN2.5 billion comfortably covered its capex of PEN1.8 billion and dividends of PEN381 million. Capex could remain high in 2015, in line with 2014 due to the upcoming 700 Mhz spectrum auctions and TDP's high investments for networks, but it should gradually trend down as the company increases its 3G/4G coverage over the medium- to long-term. In the absence of any material increase in shareholder distribution to TEF, or sizable contingent liabilities with regard to its income tax disputes against the Superintendencia Nacional de Administracion Tributariabeing (SUNAT) being materialized, Fitch expects the company to continue positive FCF generation over the medium term. Market-Leading Position: TDP's dominant market positions in both the fixed and mobile segments are likely to remain intact backed by its well-established network coverage and strong brand recognition in spite of increasing competitive pressures. Competition for a market share in the Peruvian mobile industry has notably increased mainly due to Entel's aggressive marketing campaign as it attempts to quickly achieve a sizable scale. Although a modest market share loss with continued margin erosion could continue for TDP going forward, Fitch believes the company's superior network and service quality, for both voice and data, compared to its peers should enable it to mitigate the competitive threats to an extent, and help maintain market leadership. At end-2014, TDP retained its largest market shares across all of its service platforms, with 84% and 79% in broadband and fixed-telephony segments, respectively, and about 55% market shares in both mobile and pay-TV segments. Margin Erosion amidst Increasing Competition: TDP's ongoing profitability deterioration is unlikely to be curbed in the short- to medium-term, due to high subscriber acquisition costs as the competition in the mobile market has increasingly become centered on handset subsidies. In Fitch's view, this trend is likely to continue as operators try to increase the penetration of smartphones to boost mobile data revenues to offset falling voice ARPU. For fixed-line telephony, the regulatory tariff adjustments, in addition to waning demand, have led to the segmental revenue and margin suppression. In the last 12 months as of March 2015, the company's EBITDA margin fell to 31.1% from 33.6% in 2013. Fitch forecasts the margin to continue to fall to below 30% over the medium term. Stable Revenue Growth Ahead: Fitch forecasts the company's revenue growth to remain stable, in the mid-single digits, in 2015 and 2016. The increasing subscriber base for the high-ARPU 4G mobile service as well as the bundled offerings of broadband and pay-TV services will enable the company to fully offset the revenue contraction of the fixed-voice service. Also, compared to other mature markets in the region such as Brazil or Chile, Peru's relatively lower mobile and smartphone penetration rates, estimated to be 107% and 24% at end-2014, bode well for the company's subscriber base growth potential. In 2014, the company's consolidated revenue increased by 8.0% from a year ago. Key Assumptions --Stable mid-single-digit annual revenue growth in 2015 and 2016; --Market share gradually declines towards 50% in the long term due to the new entrants; --EBITDA margin to trend down to below 30% over the medium term; --Positive FCF generation over the medium term; --Net leverage to remain below 1.0x in 2015 and 2016, in line with the level at March 2014, in the absence of any sizable shareholder distribution or contingent liability payments. Rating Sensitivities A negative rating action could be considered in the case of material deterioration in the company's key operating and financial metrics due to competitive/regulatory pressures, higher-than-expected capex and shareholder distributions, or any substantial negative impact from the pending legal dispute with SUNAT over the income tax issues - if all of which combined resulted in the company's net leverage increasing over 2.0x on a sustained basis. TDP's ratings are not directly linked to the ratings of its parent, TEF. However, any significant deterioration in the parent's credit profile, to the effect that it results in multi-notch rating downgrades or in a material liquidity crunch for the parent, could place pressure on TDP's ratings. Although the ratings of TDP and TEF are not directly linked, an upgrade of TDP's ratings remains limited at the current juncture due to TEF's current IDR of 'BBB+' with a Negative Outlook. Contact: Primary Analyst Alvin Lim, CFA Director +1-312-368-3114 Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 Secondary Analyst Josseline Jenssen Director +00511-372-0681 Committee Chair Daniel R. Kastholm, CFA Regional Group Head - Latin America +1-312-368-2070 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available at 'www.fitchratings.com' Applicable Criteria and Related Research: --'Corporate Rating Methodology' (May 28, 2014) --'Telecommunications - Ratings Navigator Companion' (November 17, 2014) Applicable Criteria and Related Research: Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage here Telecommunications: Ratings Navigator Companihere Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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