MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has affirmed Operadora de Sites Mexicanos S.A. de C.V's (Opsimex) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) at 'BBB-' and National Long-Term Rating at 'AA(mex)'. The Rating Outlook is Stable. Fitch has also affirmed the company's Foreign- and Local-Currency senior unsecured debt ratings at 'BBB-' and 'AA(mex)', respectively. A complete list of ratings actions follows at the end of this release.
The ratings reflect Opsimex's strong strategic and operational linkage to America Movil S.A.B. de C.V.'s (AMX; rated 'A') operations, and implicit support from the controlling shareholder, which also controls AMX. The company's passive infrastructure is critical to AMX's mobile operations in Mexico. The ratings also benefit from Opsimex's strong business profile, underpinned by its large tower portfolio in Mexico, low competitive and technology risks, and predictable revenue stream and cash flow generation, which is also backed by favourable demand outlook from AMX and other operators given the mobile industry trend.
Opsimex's high level of financial leverage is weak for the rating category. Positively, this is mitigated to an extent given its low business profile risks and Fitch's expectation for the company's medium-term leverage improvement.
KEY RATING DRIVERS
Medium-term Leverage Improvement
Fitch forecasts Opsimex's organic EBITDA growth will support gradual deleveraging toward 5.0x by 2018, which compares favourably to its level of 7.0x, measured by total debt to EBITDA as of March 31, 2016. Fitch believes it is the company's goal to improve leverage with positive free cash flow generation in the absence of dividend payments during the next two years. The current ratio of one tenant per tower also offers good growth potential over the medium term, which could potentially shorten the period for Opsimex to reach its targeted capital structure once they acquire more tenants.
Low Business Risk
Opsimex, as a critical infrastructure provider for other telecom operators, benefits from low business risks given its strong market position and favourable industry characteristics. The company operates the largest wireless mobile communication tower portfolio in Mexico, with the most complete coverage in the country composed of approximately 12,874 tower sites as of Dec. 31, 2015. The company has strong recurring cash flows, predictable revenues and stable operating margins due to its low exposure to economic cycles, long-term land leases with high renewal rates, and low customer churn.
Stable Growth Model
The company's growth outlook is stable given the steadily increasing demand from telecom operators in Mexico. Opsimex plans to build over 1,000 towers per year during the next three years, in line with mobile operators' efforts to rapidly grow their network coverage. The new leasing opportunities to AMX and to other mobile operators should be a key factor in revenue and cash flow growth. The company's operating margins and cash flow generation could improve as a result of increased number of tenants per tower, without any material incremental costs.
Land Lease Risk
Opsimex leases all properties where its site infrastructure is located and it has no significant concentration in a single landowner as of December 2015. The company's average contract term was 8.5 years at the inception of its operation, which will continue to increase going forward as the new contracts are signed for a 10-year period with additional 10-year renewal options. The average remaining time in the contract currently stands at 5.3 years. Tower term agreements mirror land agreements.
The company's high reliance on operating leases for lands and its low modular capex allows flexibility in terms of its tower allocation plan and cash flow management. The company can change or defer its growth plan relatively easily in case of an unexpected change in economic conditions or in the regulatory environment which could potentially negatively affect Opsimex's operations.
Low Competition; Favorable Outlook
Opsimex operates in an industry with minimal competition, where the growth in demand comes mainly from its captive mobile operator in AMX. Also, the wireless operators' growth strategies to bring more value to their subscriber's data plans have made the demand for data capacity grow rapidly. The growth in 4G LTE devices has also resulted in substantially greater investment in wireless network spending and spectrum by operators in order to support greater density and higher bandwidths needed for 4G networks.
KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for Opsimex include the following:
--Revenue growth driven by an increase in towers and tenants per tower, with the ratio modestly improving to 1.1 by 2016;
--Capital expenditures of around MXN1.7 billion during 2016 -2018 to build new towers. Fitch expects around 1,100 additional towers per year;
--Debt/EBITDA ratio to improve gradually over the medium term, due to higher EBITDA generation.
--No dividend payment until 2018.
RATING SENSITIVITIES
Factors that could result in a negative rating action include failure to approach to a Debt/EBITDA ratio of 5.0x in the next two to three years. Other factors include operating performance that falls short of Fitch's expectations, revenue and margin erosion due to economic and competitive environment, unfavourable changes in regulation and debt financed acquisitions that could hinder any leverage improvement on a sustained basis.
Fitch does not foresee a positive rating action in the short to medium term given Opsimex' high leverage and the incorporation into the rating that leverage will approximate to 5.0x in the next few years.
LIQUIDITY
Strong Liquidity: Opsimex boasts a sound liquidity profile, with cash and temporary investments of about MXN470 million. Due to the short-term debt refinance during February 2016, the company does not face any debt maturity until 2020, when the Certificados Bursatiles (CB) OSM 15-2 will become due. Opsimex has good access to domestic capital markets, which further underpin its financial flexibility.
Opsimex debt, including financial leases, is composed of its senior unsecured notes 100% denominated in MXN. This compares favourably with is revenue composition, which is 100% denominated in MXN.
Fitch currently rates Opsimex as follows:
--Long-Term Local-Currency IDR at 'BBB-';
--Long-Term Foreign-Currency IDR at 'BBB-';
--National Long-Term Rating at 'AA(mex)';
--National Short-Term Rating at 'F1(mex)';
--MXN9.7 billion senior unsecured notes due 2025 at
'BBB-/AA(mex)';
--MXN 4.5 billion senior unsecured notes due 2020 at
'BBB-/AA(mex)';
--UDI 1.3 billion senior unsecured notes due 2030 at
'BBB-/AA(mex)';
--MXN 3 billion short-term program due 2018 at 'F1(mex)'.
The Rating Outlook is Stable.
Additional information is available on www.fitchratings.com
Applicable Criteria
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362
Additional Disclosures
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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1007995
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