Fitch Rates America Movil's EUR3.0B Exchangeable Notes 'A (EXP)'

martes 26 de mayo de 2015 11:44 GYT
 

(The following statement was released by the rating agency) CHICAGO, May 26 (Fitch) Fitch Ratings has assigned an 'A(EXP)' rating to America Movil, S.A.B. de C.V.'s (AMX) proposed EUR3 billion senior unsecured exchangeable notes due 2020. The notes will be exchangeable for common shares of Koninklijke KPN N.V. in which AMX holds 21% stakes. Proceeds from the issuance are expected to be used for general corporate uses including debt repayment. KEY RATING DRIVERS AMX's ratings reflect its position as the largest wireless service provider in Latin America with well-established multiple service platforms and network infrastructure and a high degree of geographical cash flow diversification, all of which support its consistent positive free cash flow (FCF) generation, ample financial flexibility, and solid liquidity. Ratings are tempered by increasing competitive and regulatory pressures in some of its key markets, recent increase in leverage due to acquisitions and shareholder distributions, as well as price pressures in its voice services. Medium-Term Net Leverage Solid at 1.5x: The ratings reflect AMX's commitment to reduce its net leverage to below 1.5x, which Fitch believes is achievable over the medium term given the company's solid FCF generation. The company is expected to keep financial discipline with respect to cash flow usage in order to achieve its financial target in the absence of any sizable acquisitions or significant increase in shareholder distributions. As of March 31, 2015, AMX's net debt-to-EBITDA ratio was 1.8x, relatively unchanged from 1.7x at the end of 2013. The company's net debt increased to MXN518 billion from MXN423 billion during the same period, partly due to the full-consolidation of Telekom Austria. Regulatory Pressures in Mexico: Regulatory measures from the Mexican telecom sector reform, in which AMX was declared 'preponderant' during 2014, have negatively affected the company's Mexican operation. The unfavorable measures mainly include reductions in interconnection and national long-distance charges, as well as sharing of AMX's network infrastructure. As a result, during the first quarter of 2015 (1Q'15), the company's Mexican operation's revenues declined by 2% compared to a year ago, while the EBITDA margin fell to 42% from 44%. In addition, the entrance of AT&T should increase the competitive intensity over the medium to long term and pressure AMX's profitability in Mexico. Positively, the impact on a consolidated basis is unlikely to be material given the company's well-diversified operational geographies. During the quarter, about 70% of AMX's consolidated revenues were generated outside of Mexico. In July 2014, AMX announced its plan to decrease its Mexican market share to below 50% by selling operational assets in order to cease to be a preponderant operator. The company has indicated that the planned divestiture will take place only at a fair market value and if the company will be allowed to provide convergent services, including pay-TV, without being subject to unfavorable regulations following the asset sale. AMX should be able to maintain a stable financial profile over the medium term regardless of the path taken by the company, either to divest or keep the assets. A completion of the sale of these assets would be slightly positive to AMX creditors in the near term, as it would accelerate AMX's desire to meet its leverage target. The company's ratings would also likely remain intact without the sale as Fitch projects AMX's net leverage would fall towards 1.5x by 2016, which is only 12 to 18 months longer than if asset sales occurred. Stable Performance: AMX has continued to maintain stable revenue and EBITDA growth during the LTM as of March 2015 despite the increasing pricing pressures on voice services and negative exchange rate movements in some of its key markets. The company has aggressively invested since 2011 in upgrading its fixed/mobile networks across the region to provide attractive bundled fixed product offerings, as well as to improve mobile data user base and revenues. As a result, the revenue contributions from fixed-line services, excluding voice, and wireless data represented 23% and 30% of the consolidated revenues, respectively, during 1Q'15, which are significant improvements from 20% and 18%, respectively, during 1Q12. As these segments fully offset the declining voice revenues, AMX has managed to improve its revenues by 3% during 1Q'15 compared to the same period a year ago. EBITDA declined by 2% on a local currency basis largely due to the aforementioned reform measures in Mexico. Positive FCF: AMX is likely to continue its solid positive FCF generation over the medium term, underpinned by stable CFFO, fully covering the annual capex budget of MXN120 billion-MXN130 billion. The company's pre-dividend FCF would be used to maintain a conservative capital structure with a modest shareholder return in the form of dividends or share buyback. During the LTM as of March 2015, the company's CFFO amounted to MXN191 billion which fully covered its capex of MXN150 billion and shareholder distributions of MXN39 billion. KEY ASSUMPTIONS Fitch's key assumptions within the rating case for AMX include --Modest revenue growth in the low-single-digits over the medium term; --Modest margin deterioration to continue, with the EBITDA margin falling to below 30%, over the medium term due to the competitive and regulatory pressures; --Continued positive FCF generation despite high capex requirement in the absence of any material increase in shareholder distributions; --Net leverage to gradually decline towards 1.5x over the medium term. RATING SENSITIVITIES Future developments that may, individually or collectively, lead to a negative rating action include: --Increased regulatory and competitive pressures across its operational geographies leading to significant erosion in its market positions and operating margins; --Aggressive shareholder return policy in terms of both dividends and share buybacks; --Sizable investments/acquisitions leading to weak cash generation over the medium to long term; --Net leverage increasing above the range of 1.5x-2.0x on a sustained basis as a result of the aforementioned factors. Conversely, ratings upgrades are not likely in the short to medium term due to the competitive/regulatory operating environment, and increased leverage compared to the historical levels. LIQUIDITY AMX's liquidity is strong in light of its robust internal cash flow generation and easy access to domestic/international capital markets when in need of external financing. The company also has revolving syndicated facilities of USD4.6 billion. As of March 2015, AMX held readily-available-cash of MXN56 billion against the short-term debt of MXN91 billion. Fitch currently rates America Movil as follows: --Local currency IDR 'A'; --Foreign currency IDR 'A'; --Senior notes issuances 'A'; --Subordinated notes issuances 'BBB+'; --Mexican national-scale rating 'AAA(mex)'; --Certificados Bursatiles issuances 'AAA(mex)'; --UF30 million Chilean Notes Program N#474, including Series A and D issuances for a combined amount of UF9 million, 'AA+(cl)'. Contact: Primary Analyst Alvin Lim, CFA Director +1-312-368-3114 Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 Secondary Analyst Gilberto Gonzalez, CFA Associate Director +1-312-368-2310 Committee Chairperson Alberto Moreno +1-52-81-8399-9100 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. 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