CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned an international scale rating of 'A' and a national scale rating of 'AAA(mex)' to America Movil, S.A.B. de C.V.'s (AMX) MXN10 billion senior notes due 2019 and MXN7.5 billion senior notes due 2024. Proceeds from the issuance are expected to be used for general corporate uses including debt repayment.
KEY RATING DRIVERS
AMX's ratings reflect its diversified fixed and wireless operations across Latin America, multiple service platforms, large-scale, strong financial profile backed by stable free cash flow, ample financial flexibility, and solid liquidity. The ratings take into account Fitch's expectation that AMX's net leverage will remain within the company's long-term objectives and should end 2014 close to 1.5x. Ratings are tempered by increasing competitive pressures, especially in Mexico due to the regulatory reform, as well as price pressures in voice services.
NET LEVERAGE EXPECTATION BELOW 1.5x:
The ratings reflect AMX's firm commitment to reduce net debt-to-EBITDA to below 1.5x. Fitch expects AMX to keep financial discipline with respect to uses of cash flow until leverage decreases. Failure to achieve this due to increasing competition, or higher-than-expected cash outflows related to acquisitions, including the planned stake increase in Telekom Austria, would pressure the ratings.
For the 12 months ended March 31, 2014, America Movil's total debt-to-EBITDA was 1.9x, while net-debt-to-EBITDA was approximately 1.6x. For the same period, total debt amounted to MXN481 billion (USD37 billion), of which approximately 94% 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.
REGULATORY PRESSURES IN MEXICO:
Fitch believes that the competitive intensity will increase over the medium to long term for AMX's Mexican operation due to regulatory reform. This could pressure the company's operating margins. The company was declared 'preponderant' in March 2014 and, as a result, will be subject to unfavorable measures, including reductions in interconnection rate and roaming charges, as well as the sharing of its infrastructure. However, the outright negative impact from the measures on the company's financial profile should not be material given the less than 2% proportion of its interconnection revenues in Mexico out of the total consolidated revenues, its entrenched market position, as well as its geographic diversification. The approval of the secondary laws by congress is still pending.
Stable Free Cash Flow:
Fitch forecasts AMX to continue its solid positive FCF generation over the medium term, underpinned by stable internal cash generation which should fully cover its capital expenditures of about USD10 billion per year. Fitch also believes pre-dividend FCF will be used to maintain a conservative capital structure with a modest shareholder return in the form of dividends or share buyback. The company is likely to continue some acquisitions over the medium term, but Fitch does not expect them to be material enough in size to impair the credit profile. In 2013, the company's FCF amounted to about USD2.4 billion (MXN31 billion) after capex of USD9.1 billion (MXN118 billion) and shareholder distribution of USD6.7 billion (MXN86 billion).
AMX has historically maintained a strong liquidity position. As of March 31, 2014, cash balances reached MXN40.7 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 MXN176 billion. The company's short-term debt was only MXN45 billion in the same period. In addition, the company's access to capital markets and extended maturities profile adds to financial flexibility.
A positive rating action is unlikely given its increased leverage compared to the historical levels. A negative rating action can be triggered if net leverage increases to between 1.5x-2.0x on a sustained basis as a result of operational or strategic factors.
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, including Series A and D issuances for a combined amount of UF9 million, 'AA+(cl)'.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Corporate Rating Methodology', May 28, 2014.
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage