Fitch Rates Telemovil's US$450MM Proposed Notes 'BB'

MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has assigned ratings to Telemovil El Salvador, S.A. (Telemovil) and Telemovil Finance Co. Ltd as follows:

Telemovil

--Local Currency Issuer Default Rating (IDR) 'BB';

--Foreign Currency IDR 'BB'.

Telemovil Finance Co. Ltd

--Local Currency IDR 'BB';

--Foreign Currency IDR 'BB';

--Proposed US$450 million senior guaranteed notes due 2017 'BB'.

Telemovil Finance Co. Ltd notes are unconditionally and irrevocably guaranteed by its parent company Telemovil El Salvador, S.A. (Telemovil). Proceeds from the issuance are expected to be used for refinancing all existing Telemovil indebtedness, for funding the acquisitions of Amnet and Navega by Telemovil and for general corporate uses.

The Rating Outlook is Stable.

Telemovil's ratings are supported by its leading mobile services market position in El Salvador, strong brand recognition, extensive network coverage, sound financial profile and positive pre-dividend free cash flow. The ratings are tempered by intense competition and limited geographic diversification. Also incorporated is the effect of the mobile termination rate reduction in December of 2009 and the dependence of the economy on remittances, which affects demand for telecommunications services. The ratings factor in Telemovil's relationship with its parent company Millicom International Cellular (MICC), which helps Telemovil to achieve synergies related to the larger scale of the parent and provides expertise in management. It also considers the payment of dividends, loans to affiliates and MICC's financial position. MICC's FFO generation for the 12 months ended June 30, 2010 was approximately US$1.8 billion, and its debt outstanding was around US$2.5 billion.

ACQUISITION OF AMNET AND NAVEGA A POSITIVE STEP:

The acquisitions of AMNET and Navega, expected to happen within the next few months, will increase the service offerings and network platforms of Telemovil. As a result of this, Fitch believes the competitive position of Telemovil will improve due to the offering of bundles with multiple services and the expense synergies that can be obtained through the consolidation of points of sale, brand unification, as well as lower transmission and back office costs. Amnet is the leading CATV provider in El Salvador with 277,000 revenue generating units (RGU) as of June 30, 2010. Anmet's network has 80% of bidirectional capability and covers approximately 600,000 homes passed. Navega provides communications services to enterprises and carriers that require broad range of services that demand higher bandwidth.

In Fitch's view, Telemovil's strategy of offering bundled services along with its strategy of focusing on offering differentiated mobile services should help the company to maintain its leading market position in the medium term. In addition, as mobile penetration exceeds 100%, growth should be focused on data and value added services (VAS) to compensate for voice price per minute declines. VAS accounts for approximately 20% of service revenues; however most of the revenues are derived by SMS. Additionally, Telemovil's 3G network should benefit by offering data services to Amnet customers that do not have access to the bidirectional network. Despite the fact that Telemovil's 46% subscriber market share is approximately two times that of the second largest competitor (Digicel), the existence of five established operators - including America Movil and Telefonica - ensures that an intense competitive environment will be maintained going forward. Competitors may attempt to gain market share in the mobile segment, but Telemovil's steps to integrate Amnet and Navega should temper the effect of competition.

Fitch estimates that over the next few years Telemovil should generate free cash flow before dividend distributions in excess of US$80 million per year. Pre-dividend free cash flow will be underpinned by capital expenditures which should account for approximately 14% of revenues, despite a reduction in 2010, and Fitch expects cash flow generation to remain stable or modestly grow. Fitch expects that any improvement in leverage in the medium term will be driven by increased EBITDA and funds flow from operations (FFO). For the 12 month ended June 30, 2010 Telemovil registered revenues and EBITDA of US$416 million and US$192 million, respectively. Considering the placement of the notes, leverage metrics of total debt to EBITDA and total adjusted debt to EBITDAR should be approximately 2.4 times (x) and 2.5x, respectively. However, once EBITDA from Amnet and Navega are consolidated into Telemovil, leverage should tend to be lower.

Considering the proposed notes, near term liquidity should not represent a risk given the maturity of the notes in 2017 represents the only upcoming debt maturity. However, given that all the company debt is due in 2017, the company's distribution of pre-dividend free cash flow may have an effect on refinancing risk as 2017 approaches. As of June 30, 2010 the parent company, MICC, had a strong liquidity position and an adequate financial profile.

Additional information is available 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology', dated Aug. 16, 2010;

--'Parent and Subsidiary Rating Linkage (Fitch's Approach to Rating Entities Within a Corporate Group Structure)', July 14, 2010;

--'Operating Leases: Updated Implications for Lessees' Credit, 13 Aug. 2009.

Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646

Operating Leases: Updated Implications for Lessees' Credit

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=462222

Parent and Subsidiary Rating Linkage Criteria Report

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=534826

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