MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Rating believes the proposal to merge Colombia Movil S.A. with UNE EPM Telecomunicaciones S.A. E.S.P. (UNE) (rated 'AAA(col)' by Fitch) should not affect Millicom International Cellular, S.A.'s (MIC) 'BB+' ratings. MIC has stated that it does not anticipate net debt to EBITDA to exceed 1.5x after this transaction, which is in line with Fitch's expectations. Fitch believes a successful merger will improve the competitive position of the resulting entity in Colombia, as they offer complementary services. Fitch also believes there is some room to achieve synergies.
UNE is the incumbent fixed telecommunications provider in Medellin and has the leading market share in fixed broadband with a 27% share in Colombia. UNE holds a nation-wide second place in fixed line and pay-tv market share with 27% and 29% shares, respectively. In addition, UNE has a 25% stake in Colombia Movil, where MIC has a 50% plus one share. Fitch expects the combined entity to have annual revenues of approximately US$1.7 billion.
MIC's ratings are supported by the company's geographically diversified portfolio; leading market positions in most of its markets; value added services orientation; and expectation of moderate leverage, good liquidity and pre-dividend free cash flow generation. The ratings are tempered by exposure to markets with low sovereign ratings and low GDP per capita, pricing pressures, debt allocation between subsidiaries and holding, shareholder returns policy and recent M&A activity.
The ratings reflect MIC's leading positions in the majority of its markets, resulting in free cash flow generation. For the 12 months ended Sept. 30, 2012 approximately 65% of EBITDA was generated in countries where the company has the leading market share in mobile services. Strong brand recognition and extensive distribution networks helps the company mitigate a strong competitive environment, particularly in mobile voice.
The ratings incorporate that MIC's net debt to EBITDA (after corporate expenses) should be close to 1.5x over the long term. The company has historically maintained a strong liquidity position with high cash balances. Fitch remains concerned that the investment in Rocket could require additional capital injections, which could cause Millicom's leverage to increase over the medium term.
Fitch currently rates MIC and to MIC Africa BV as follows:
MIC:
--Local Currency Issuer Default Rating (IDR) 'BB+';
--Foreign Currency IDR 'BB+'.
The Rating Outlook is Stable.
Additional information is available 'www.fitchratings.com'.
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