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) reopening of MXN7.5 billion senior notes due 2024. After the add-on, the amount outstanding for the 2024 notes will amount to MXN15 billion. Proceeds from the issuance are expected to be used for general corporate uses including debt repayment.
KEY RATING DRIVERS
AMX's ratings reflect its largest wireless service provider in Latin America with well-established multiple service platforms and network infrastructure, as well as 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 the acquisitions and shareholder distributions, as well as price pressures in 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 Dec. 31, 2014, AMX's net debt-to-EBITDA ratio was 1.7x, unchanged from the level at the end of 2013, partly due to the increased ownership in Telekom Austria despite solid cash flow from operation (CFFO) generation. The company's net debt increased modestly to MXN533 billion from MXN519 billion, based on a full-consolidation of Telekom Austria.
Regulatory Pressures in Mexico:
AMX's Mexican operation is subject to asymmetrical regulations as a result of the telecom sector reform in which the company was declared 'preponderant' in March 2014. The unfavorable measures mainly include reductions in interconnection and roaming charges, as well as sharing of AMX's network infrastructure. While this will result in increased competition over the medium to long term and likely pressure AMX's profitability in Mexico, the outright financial impact should not be material as Fitch estimates the revenue loss from this to have accounted for less than 2% of the company's consolidated revenues in 2014. In addition, AMX's well-diversified operational geographies largely mitigate the impact.
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 clearly 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 likely remain intact without the sale; however, as Fitch projects AMX's net leverage would fall below 1.5x by 2016, which is only 12 months-18 months longer than if asset sales occurred.
Solid Operating Results
AMX has continued to maintain stable revenues and EBITDA growth during 2014 despite the increasing pricing pressures on voice 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 28% of the consolidated revenues, respectively, during the fourth quarter of 2014 (4Q'14), which are significant improvements from 15% and 17%, respectively, during 4Q'11. As these segments fully offset the declining voice revenues, AMX has managed to improve its revenues and EBITDA by 2.9% to MXN884 billion and 0.9% to MXN279 billion, respectively, in 2014 from a year ago.
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 2014, the company's CFFO amounted to MXN215 billion which fully covered its capex of MXN150 billion and shareholder distributions of MXN52 billion.
Negative: 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 1.5x-2.0x on a sustained basis as a result of the aforementioned factors.
Considerations that could lead to a positive rating action (Rating or Outlook):
Ratings upgrades are not likely in the short to medium term due to the competitive/regulatory operating environment, and increased leverage.
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)'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology', May 28, 2014;
--'National Scale Ratings Criteria', Oct. 20, 2013.
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
National Scale Ratings Criteria