MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has affirmed America Movil's SAB de CV (AMX) and Telefonos de Mexico's SA de CV (TMX) local and foreign currency Issuer Default Ratings (IDRs) and senior unsecured notes at 'A'. Fitch has also affirmed AMX and Telmex Internacional SA de CV (Telint) National Scale Ratings and senior unsecured Certificados Bursatiles and notes at 'AAA(mex)'.
The Rating Outlook is Stable.
A full list of rating actions is provided at the end of this release.
In addition Fitch has assigned a 'BBB+' to the senior subordinated hybrid securities to be issued in three tranches:
-- A-5.125% EUR900 million senior subordinated notes due 2073'
-- B-6.375% EUR550 million senior subordinated notes due 2073;
-- C-6.375% GBP550 million senior subordinated notes due 2073.
These hybrid securities will be deeply subordinated and rank senior only to AMX's ordinary shares, while coupon payments can be deferred at the option of the issuer. As a result of these features, the 'BBB+' rating assigned to the proposed securities is two notches below AMX's 'A' IDR, which reflects the securities' increased loss severity and heightened risk of non-performance relative to the senior obligations. This approach is in accordance with Fitch's criteria, 'Treatment and Notching of Hybrid in Nonfinancial Corporate and REIT Credit Analysis' dated Dec. 13, 2012 at www.fitchratings.com. The hybrid securities will also qualify for 50% equity credit.
KEY RATING DRIVERS
The rating actions reflects Fitch views that net leverage will remain within the company's long term strategy and should finish 2014 below 1.5 times (x). There is still uncertainty about the final outcome of AMX's tender offer for Royal KPN N.V. (KPN, 'BBB-'/Stable), especially after the announcement by the Foundation to exercise preferred shares that could potentially block AMX tender offer. Assuming KPN is ultimately acquired by AMX and the sale of E-plus is successful, Fitch expects that the tender offer will be funded in a manner that will result in pro forma net debt to EBITDA ratio approaching 1.5x. Fitch believes leverage ratios should not materially change under the different scenarios.
In Fitch's opinion, if AMX eventually succeed in acquiring 100% of KPN and if the transfer of E-plus to Telefonica Deutschland for a 20.5% stake in that company plus EUR5 billion does not get the necessary regulatory approvals, pro forma leverage should be higher than 1.5x but should follow the same declining trend. Fitch notes that in the case that KPN's tender offer is not successful, the proceeds from the hybrid issuance will be used to pay senior debt, resulting in lower leverage ratios given the equity credit of the hybrid securities.
NET LEVERAGE EXPECTATION BELOW 1.5X BY 2014:
Fitch incorporates in its ratings AMX's firm commitment to reduce net debt to EBITDA below 1.5x by the end of 2014. Failure to achieve this should pressure the ratings and are likely to result in a one notch downgrade. The entrance of a new telecommunications law in Mexico and KPN's operating performance, if KPN acquisition succeed, could pressure cash flow generation hindering AMX's ability to reduce leverage. Fitch expects AMX to keep financial discipline with respect to uses of cash flow until leverage decreases.
AMX's 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 ratings 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.
In Fitch's view, if the KPN acquisition is successful it will improve AMX diversification of cash flows, currency political and regulatory risks among others. On a pro forma basis assuming KPN (excluding E-plus) is consolidated into AMX for the 12 months ended June 30, 2013 the biggest contributors to EBITDA generation should be Mexico with 39%, Netherlands 17%, Brasil 15% and Colombia 11%. While this should be positive to diversification Fitch is concerned with future development of the Mexican and Dutch operations, however Fitch notes that recent positive trends in Brasil could somewhat temper weak results in Mexico and the Netherlands if they occur.
REGULATORY PRESSURES IN MEXICO
The upcoming telecommunications law in Mexico is expected to become enforced during this year once the secondary laws are passed by congress. While the final outcome and effects on AMX are still uncertain, Fitch will expect the outcome of the secondary laws to put some pressure on the Mexican operating results. Regulatory issues in Colombia are expected by Fitch to have a slight negative impact on America Movil's operating results. Impact on Colombian operating results should be minimal due to the recent enforcement of asymmetric rates as interconnection revenues are low. In addition, the exclusion from the AWS band auction and allowing AMX to participate only in the 2.5Ghz band should have a minimal effect on capex given the actual tower coverage in Colombia.
Historically AMX has maintained a strong liquidity position. As of June 30, 2013 cash balances reached MXN31.6 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 MXN147 billion. This adequately compares with maturities for the next three years of MXN106.8 billion. In addition, the company's access to capital markets and extended maturity profile adds to financial flexibility.
Free cash flow of AMX existing operations is expected to remain solid over the medium term, underpinned by stable capital expenditures in the next few years of approximately USD10 billion. Fitch believes cash flow from operations will be used to maintain a conservative capital structure and to return excess cash flow, in the absence of acquisitions, to shareholders in the form of dividends or share buybacks.
For the 12 months ended June 30, 2013 America Movil's total debt to EBITDA was 1.8x, while net debt to EBITDA approximated 1.7x. For this same period, total debt amounted to MXN459 billion (USD34.8 billion) of which 91% is debt issued in the international and domestic capital markets and approximately 90% 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.
RATING SENSITIVITY
A positive rating action is unlikely given the actual leverage levels which are high to historical levels. 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.
Fitch has affirmed the following ratings:
America Movil
-- Local currency IDR at 'A';
-- Foreign currency IDR at 'A';
-- Senior notes issuances at 'A';
-- Mexican national scale rating at 'AAA(mex)';
-- Certificados Burstiles issuances with ticker symbols AMX 10, AMX 10-2 and AMX 10U at 'AAA(mex)';
-- AMX senior notes 1122 due 2022 at 'A' and at 'AAA(mex);
-- 30 Million UF-denominated Chilean Notes Program, including Series A and D issuances for a combined amount of UF9 million, at 'AA+(cl)'.
Telefonos de Mexico
-- Local currency IDR at 'A';
-- Foreign currency IDR at 'A';
-- Senior notes issuances at 'A'.
Telmex Internacional
-- Mexican national scale rating at 'AAA(mex)';
-- Mexican national scale short term rating at 'F1+(mex)';
-- MXN20 billion Dual Certificados Bursatiles Program at 'AAA(mex)/F1+(mex)';
-- Certificados Burstiles issuances with ticker symbol TELINT09-2 at 'AAA(mex)'.
Additional information is available 'www.fitchratings.com'.
Applicable Criteria and Related Research:
-- 'Corporate Rating Methodology', Aug. 5, 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. 8, 2012;
-- 'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis', Dec. 13, 2012;
-- 'Rating Telecoms Companies', Aug. 9, 2012.
Applicable Criteria and Related Research:
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
Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT
Credit Analysis
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696670
Rating Telecom Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682323
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=801109
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