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4 years ago
Fitch Rates America Movil's USD750 Million FRN 'A'
September 11, 2013 / 5:08 PM / 4 years ago

Fitch Rates America Movil's USD750 Million FRN 'A'

(The following statement was released by the rating agency) MONTERREY/NEW YORK, September 11 (Fitch) Fitch Ratings has assigned an 'A' rating to America Movil, S.A.B. de C.V.'s (AMX) USD750 million floating-rate senior notes (FRN) due 2016. The FRN will be an unsecured and unsubordinated obligation and will pay quarterly interest at the rate of three-month LIBOR plus 100 basis points. Proceeds from the issuance are expected to be used for general corporate uses, including the repayment of MXN-denominated debt. KEY RATING DRIVERS AMX's ratings incorporate its diversified fixed and wireless operations across Latin America, multiple service platforms, large scale, strong free cash flow, ample financial flexibility, solid liquidity and sound financial profile. The ratings take into account Fitch's expectation that management will maintain a relatively conservative financial profile over the long term. A strong competitive environment underpinned by increasing regulation in Mexico and Colombia, as well as declining prices in voice services, temper the ratings. AMX's ratings reflect Fitch view that net leverage will remain within the company's long-term strategy and should finish 2014 below 1.5x. There is still uncertainty about the final outcome of AMX's tender offer for Royal KPN N.V. (KPN, rated 'BBB-' with a Stable Outlook by Fitch), especially after the announcement by the Foundation to exercise preferred shares that could potentially block AMX's tender offer. Assuming KPN is ultimately acquired by AMX and the sale of E-plus is successful, Fitch expects that the tender offer will be funded in a manner that will result in pro forma net debt-to-EBITDA approaching 1.5x. Fitch believes leverage ratios should not change materially under the different scenarios. In Fitch's opinion, if AMX eventually succeeds in acquiring 100% of KPN and if the transfer of E-plus to Telefonica Deutschland for a 20.5% stake in that company plus EUR5 billion does not get the necessary regulatory approvals, pro forma leverage should be higher than 1.5x but should follow the same declining trend. Fitch notes that if KPN's tender offer is not successful, the proceeds from the recently placed hybrid issuance will be used to pay senior debt, resulting in lower leverage ratios given the equity credit of the hybrid securities. NET LEVERAGE EXPECTATION BELOW 1.5X BY 2014: Fitch incorporates in its ratings AMX's firm commitment to reduce net debt-to-EBITDA to below 1.5x by the end of 2014. Failure to achieve this should pressure the ratings and is likely to result in a one-notch downgrade. The enactment of a new telecommunications law in Mexico and KPN's operating performance, if the KPN acquisition succeeds, could pressure cash flow generation hindering AMX's ability to reduce leverage. Fitch expects AMX to keep financial discipline with respect to uses of cash flow until leverage decreases. In Fitch's view, if the KPN acquisition is successful it will improve AMX's diversification of cash flows, along with currency, political and regulatory risks, among others. On a pro forma basis assuming KPN (excluding E-plus) is consolidated into AMX, for the 12 months ended June 30, 2013 the biggest contributors to EBITDA generation should be Mexico with 39%, Netherlands 17%, Brasil 15, and Colombia 11%. While this should be positive, Fitch is concerned with future development of the Mexican and Dutch operations. However, Fitch notes that recent positive trends in Brasil could somewhat temper weak results in Mexico and the Netherlands if they occur. REGULATORY PRESSURES IN MEXICO The upcoming telecommunications law in Mexico is expected to be enforced during this year once the secondary laws are passed by congress. While the final outcome and effects on AMX are still uncertain, Fitch expects the outcome of the secondary laws to put some pressure on the Mexican operating results. Regulatory issues in Colombia are expected by Fitch to have a slightly negative impact on America Movil's operating results. The impact on Colombian operating results should be minimal due to the recent enforcement of asymmetric rates, as interconnection revenues are low. In addition, the exclusion from the AWS band auction and allowing AMX to participate only in the 2.5Ghz band should have a minimal effect on capex given the actual tower coverage in Colombia. Historically AMX has maintained a strong liquidity position. As of June 30, 2013, cash balances reached MXN31.6 billion and the company has unused committed credit facilities for USD4.1 billion (equivalent to approximately MXN52 billion) on top of cash from operations (CFO) over the past 12 months of MXN147 billion. This adequately covers maturities for the next three years of MXN106.8 billion. In addition, the company's access to capital markets and extended maturity profile adds to financial flexibility. AMX's free cash flow from existing operations is expected to remain solid over the medium term, supported by stable capital expenditures in the next few years of approximately USD10 billion. Fitch believes cash flow from operations will be used to maintain a conservative capital structure and to return excess cash flow, in the absence of acquisitions, to shareholders in the form of dividends or share buybacks. For the 12 months ended June 30, 2013, America Movil's total debt to EBITDA was 1.8x, while net debt to EBITDA approximated 1.7x. For this same period, total debt amounted to MXN459 billion (USD34.8 billion), of which 91% is debt issued in the international and domestic capital markets and approximately 90% has a fixed rate. America Movil's currency risk exposure strategy is to have a net currency exposure to match the majority of its cash flow. RATING SENSITIVITY A positive rating action is unlikely given the actual leverage levels, which are high compared to historical levels. A negative rating action can be triggered if net leverage increases between 1.5x-2.0x on a sustained basis due to operational or strategic factors. Fitch rates AMX as follows: --Local currency IDR 'A'; --Foreign currency IDR 'A'; --Senior notes issuances 'A'; --Subordinated hybrid securities 'BBB+'; --Mexican national scale rating 'AAA(mex)'; --Certificados Burstiles issuances with ticker symbols AMX 10, AMX 10-2 and AMX 10U 'AAA(mex)'; --AMX senior notes 1122 due 2022 'A' and 'AAA(mex); --30 million UF-denominated Chilean Notes Program, including Series A and D issuances for a combined amount of UF9 million, 'AA+(cl)'. The Rating Outlook is Stable. Contact: Primary Analyst Sergio Rodriguez, CFA Senior Director Fitch Mexico S.A. de C.V. +52-81-8399-9100, Prol. Alfonso Reyes 2612 Monterrey, Mexico Secondary Analyst John Culver, CFA Senior Director +1-312-368-3216 Committee Chairperson Alberto Moreno Senior Director +52-81-8399-9100 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available 'www.fitchratings.com'. Applicable Criteria and Related Research: --'Corporate Rating Methodology', Aug. 5, 2013; --'National Ratings Criteria', Jan. 19, 2011; --Rating Non-Financial Corporates Above the Country Ceiling', Jan. 25, 2013; --'Parent and Subsidiary Rating Linkage (Fitch's Approach to Rating Entities Within a Corporate Group Structure)', Aug. 8, 2012; --Corporate and REIT Credit Analysis', Dec. 13, 2012; --'Rating Telecoms Companies', Aug. 9, 2012. Applicable Criteria and Related Research: Rating Telecom Companies here Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis here Parent and Subsidiary Rating Linkage Fitch’s Approach to Rating Entities within a Corporate Group Structure here Rating Non-Financial Corporates Above the Country Ceiling here National Ratings Criteria here Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage here 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. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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