MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings views America Movil S.A.B. de C.V.'s (AMX) offer to buy the remaining 70.23% of Koninklijke KPN N.V. (KPN) it does not already own for approximately EUR7.2 billion as a possible negative to credit quality as it holds the potential to increase AMX's leverage. The transaction, if successful and fully funded with debt, which is uncertain at this point, could result in a modest downgrade. Total debt to EBITDA could increase to approximately 2.5 times (x), and net debt to EBITDA to approximately 2.2x. As of June 30, 2013, AMX's total debt to EBITDA and net debt to EBITDA were 1.8x and 1.7x, respectively, which is at the lower end of the 'A' rating category.
AMX's offering will likely be contingent on AMX acquiring more than 50% of the shares; pro forma leverage would be slightly below the pro forma leverage level stated above the minimum share purchase is realized. AMX's current proposal is only a stated intention that AMX intends to make a formal offer and submit an offering memorandum to the Netherlands Authority for the Financial Markets for approval and, once all documentation has been approved, expect to release the offering memorandum in September.
AMX does have financing alternatives to a debt funding strategy that could be utilized, which could mitigate some of the ratings pressure but no details of the company's funding strategy has been disclosed at this time. Fitch will take a rating action once the final terms of the intended offering and funding strategy is known, or if the intended offering is not consummated.
Separately, Fitch does not expect AMX's ratings and leverage to materially change if the pending transfer E-plus to Telefonica Deutschland for a 17.6% stake in that company plus EUR5 billion is successful or not.
Fitch believes that if AMX acquisition of KPN, (rated 'BBB-'/Stable Outlook) completes, it will be positive for KPN's credit profile and KPN's ratings are could be upgraded by multiple notches. However, Fitch notes that there are a number of uncertainties surrounding the transaction and wish to wait to see how these get resolved before taking any rating action.
AMX ratings incorporate its diversified fixed and wireless operations across Latin America, multiple service platforms, large scale, strong free cash flow, ample financial flexibility, solid liquidity and sound financial profile. The 'A' ratings of AMX take into account Fitch's expectation that management will maintain a relatively conservative financial profile over the long term. A strong competitive environment underpinned by increasing regulation in Mexico and Colombia as well as declining prices in voice services temper the ratings.
RATING SENSITIVITY
A negative rating action can be triggered if net leverage increases between 1.5x-2.0x on a sustained basis due to operational or strategic factors. A positive rating action is unlikely given the leverage levels which are high to historical levels.
Fitch currently rates AMX as follows:
--Local currency Issuer Default Rating (IDR) 'A';
--Foreign
currency IDR 'A';
--Senior notes issuances 'A'.
--Mexican
national scale rating 'AAA(mex)';
--Certificados Burstiles
issuances with ticker symbols AMX 10, AMX 10-2 and AMX 10U 'AAA(mex)';
--AMX
senior notes 1122 due 2022 'A' and 'AAA(mex);
--30 million
UF-denominated Chilean Notes Program, including series A and D issuances
for a combined amount of UF9 million, 'AA+(cl)'.
Additional information is available www.fitchratings.com.
Applicable Criteria and Related Research:
--'Rating Telecom
Companies' (Aug. 05, 2012);
--'Corporate Rating Methodology'(Aug.
05, 2013);
--'National Ratings Criteria' (Jan. 19, 2011);
--
Rating Non-Financial Corporates Above the Country Ceiling'(Jan. 25,
2013);
--'Parent and Subsidiary Rating Linkage (Fitch's Approach to
Rating Entities Within a Corporate Group Structure)' (Aug. 05, 2013).
Applicable Criteria and Related Research:
Rating Telecom Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682323
Corporate
Rating Methodology: Including Short-Term Ratings and Parent and
Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139
National
Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Rating
Non-Financial Corporates Above the Country Ceiling
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=699771
Parent
and Subsidiary Rating Linkage Fitch's Approach to Rating Entities within
a Corporate Group Structure
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=714476
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