Welcome!

News Feed Item

Fitch Affirms Telemovil's IDRs at 'BB'; Outlook Stable

Fitch Ratings has affirmed the foreign- and local-currency Issuer Default Ratings (IDRs) of Telemovil El Salvador, S.A. (Telemovil) and Telemovil Finance Co. Ltd (TF) at 'BB'. The Rating Outlook is Stable. Fitch has also affirmed USD310.6 million senior notes due 2017 issued by TF at 'BB'.

At the same time, Fitch has withdrawn the IDRs of TF as the entity is not considered analytically meaningful for the credit quality of the notes which have been issued out of it and fully guaranteed by Telemovil.

Telemovil's ratings reflect its diversified service offering, leading positions in the mobile and pay television segments in El Salvador, strong brand recognition, extensive network coverage, and moderate leverage for the rating category. The company's credit quality is tempered by a persistently high level of competition which continues to weigh on its market share and cash flow generation.

The ratings also factor in Telemovil's strong linkage with its parent, Millicom International Cellular S.A. (MIC) (rated 'BB+' by Fitch), which helps Telemovil to achieve synergies related to the larger scale of the parent and provides expertise in management. It also considers the payment of dividends and royalties to MIC and Telemovil's limited geographic diversification.

ARPU Decline Continues:

Telemovil's revenue growth is likely to remain weak in 2014 and 2015, following a 1% contraction in 2013, due to the continued erosion in mobile ARPU against the backdrop of the intense competition and mature industry conditions, as the penetration rate was approximately 120% at the end of June 2014. The company's mobile strategy is centered on mobile data revenue growth which is expected to offset further possible declines in voice revenues. In addition, aggressive tariff-based strategies from competitors could prevent any meaningful recovery in Telemovil's market share; market share has fallen to 36% at the end of second quarter 2014 (2Q'14) from 40% in 2013.

Margin Erosion:

Fitch forecasts Telemovil's EBITDA margin will trend down below 30% over the medium term due to continued pressures from competitors. The revenue mix will become even more unfavorable as the lucrative mobile voice revenues gradually decline while marketing costs, including handset subsidies, continue to increase, and the contribution from the lower margin fixed-line businesses grow. Telemovil's EBITDA margin fell to 31% during 2013 from 36% in 2013, as calculated by Fitch.

Strong Growth in Other Segments:

Positively, Telemovil's non-mobile segments, including pay-TV, broadband, and B2B solutions, which together accounted for 32% of total revenues in 2013, continued to grow strongly and this trend should continue over the medium term given the still low penetration of these types of services. Telemovil's offering of bundled services, with the newly launched Direct-To-Home TV, should help ward off the competitive threats to a certain extent and mitigate negative growth in the mobile business.

By 2017, Fitch expects the company's non-mobile segment is expected to account for almost 40% of total sales. Mobile finance solutions will remain the fastest growing segment in the company, with double-digit annual revenue growth, yet its earnings contribution will still be small over the medium term.

Positive Pre-Dividend FCF:

Telemovil should be able to maintain its positive pre-dividend free cash flow (FCF) generation over the medium term despite the increasing capex amid weak EBITDA growth. The company plans to increase capex by approximately 20-30% from the 2013 level, which will represent about 14%-15% of revenues during the period, primarily for 3G/Long Term Evolution (LTE) coverage and capacity, as well as for pay-TV and fixed-line services. The increase in capex should be covered by the cash flow from operations (CFFO) before dividends over the medium term.

In addition, dividend payment has decreased significantly, by about 75% from the 2010-2012 levels. Any significant increase in the shareholder distribution over the medium term should be limited given the company's large investment plans. In Fitch's view, Telemovil's upstream payment to the parent, aside from the regular royalty fees, could be flexible depending on its financial condition and the operational outlook.

Increased Leverage

Telemovil's financial net leverage, measured by adjusted net debt-to-EBTIDAR, is forecast to remain above 2.5x over the medium term as EBITDAR in absolute terms will be relatively stable. This figure compares with 2.3x and 1.9x at the end of 2013 and 2012, respectively. Excluding the lease adjustment, the company's net debt-to-EBITDA was 1.7x at end-2013.

The company's gross leverage will decrease to close to 3.0x during 2014 from 3.7x at the end of 2013 as the company has successfully completed its partial tender offer of USD139 million on its USD450 million bond due 2017 in April 2014.

The company's liquidity profile is good as it does not face any debt maturities until 2017. Telemovil held USD206 million of readily available cash as of March 31, 2014.

Rating Sensitivities

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--Deterioration in the company's EBITDA and FCF generation along with weak revenue growth due to competitive pressures and such. factors as material loss in mobile market share, ARPU erosion, and substantial increase in marketing expenses;

--Worse-than-expected negative impact of the introduction of number portability and higher-than-expected auction prices for 4G spectrums;

--Change in MIC's financial policy, including larger cash upstreams from its subsidiaries, or any significant deterioration in the parent's credit profile.

Adjusted net debt-to-EBITDAR above 3.0x in conjunction with a weak liquidity profile on a sustained basis.

Positive: While ratings upgrades are not likely in the short- to medium-term due to the competitive operating environment, future developments that may, individually or collectively, lead to a positive rating action include:

--Reductions in net leverage below 2.0x on a sustained basis, driven by improved service diversification, enhanced market position, positive change in the competitive/regulatory environment, and/or explicit support from its parent MIC.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology', May 28, 2014

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=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=850835

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

More Stories By Business Wire

Copyright © 2009 Business Wire. All rights reserved. Republication or redistribution of Business Wire content is expressly prohibited without the prior written consent of Business Wire. Business Wire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Latest Stories
What are the successful IoT innovations from emerging markets? What are the unique challenges and opportunities from these markets? How did the constraints in connectivity among others lead to groundbreaking insights? In her session at @ThingsExpo, Carmen Feliciano, a Principal at AMDG, will answer all these questions and share how you can apply IoT best practices and frameworks from the emerging markets to your own business.
Ask someone to architect an Internet of Things (IoT) solution and you are guaranteed to see a reference to the cloud. This would lead you to believe that IoT requires the cloud to exist. However, there are many IoT use cases where the cloud is not feasible or desirable. In his session at @ThingsExpo, Dave McCarthy, Director of Products at Bsquare Corporation, will discuss the strategies that exist to extend intelligence directly to IoT devices and sensors, freeing them from the constraints of ...
SYS-CON Events announced today the Kubernetes and Google Container Engine Workshop, being held November 3, 2016, in conjunction with @DevOpsSummit at 19th Cloud Expo at the Santa Clara Convention Center in Santa Clara, CA. This workshop led by Sebastian Scheele introduces participants to Kubernetes and Google Container Engine (GKE). Through a combination of instructor-led presentations, demonstrations, and hands-on labs, students learn the key concepts and practices for deploying and maintainin...
You think you know what’s in your data. But do you? Most organizations are now aware of the business intelligence represented by their data. Data science stands to take this to a level you never thought of – literally. The techniques of data science, when used with the capabilities of Big Data technologies, can make connections you had not yet imagined, helping you discover new insights and ask new questions of your data. In his session at @ThingsExpo, Sarbjit Sarkaria, data science team lead ...
Cloud analytics is dramatically altering business intelligence. Some businesses will capitalize on these promising new technologies and gain key insights that’ll help them gain competitive advantage. And others won’t. Whether you’re a business leader, an IT manager, or an analyst, we want to help you and the people you need to influence with a free copy of “Cloud Analytics for Dummies,” the essential guide to this explosive new space for business intelligence.
Extracting business value from Internet of Things (IoT) data doesn’t happen overnight. There are several requirements that must be satisfied, including IoT device enablement, data analysis, real-time detection of complex events and automated orchestration of actions. Unfortunately, too many companies fall short in achieving their business goals by implementing incomplete solutions or not focusing on tangible use cases. In his general session at @ThingsExpo, Dave McCarthy, Director of Products...
Traditional IT, great for stable systems of record, is struggling to cope with newer, agile systems of engagement requirements coming straight from the business. In his session at 18th Cloud Expo, William Morrish, General Manager of Product Sales at Interoute, outlined ways of exploiting new architectures to enable both systems and building them to support your existing platforms, with an eye for the future. Technologies such as Docker and the hyper-convergence of computing, networking and sto...
WebRTC is bringing significant change to the communications landscape that will bridge the worlds of web and telephony, making the Internet the new standard for communications. Cloud9 took the road less traveled and used WebRTC to create a downloadable enterprise-grade communications platform that is changing the communication dynamic in the financial sector. In his session at @ThingsExpo, Leo Papadopoulos, CTO of Cloud9, discussed the importance of WebRTC and how it enables companies to focus...
With an estimated 50 billion devices connected to the Internet by 2020, several industries will begin to expand their capabilities for retaining end point data at the edge to better utilize the range of data types and sheer volume of M2M data generated by the Internet of Things. In his session at @ThingsExpo, Don DeLoach, CEO and President of Infobright, discussed the infrastructures businesses will need to implement to handle this explosion of data by providing specific use cases for filterin...
IoT generates lots of temporal data. But how do you unlock its value? You need to discover patterns that are repeatable in vast quantities of data, understand their meaning, and implement scalable monitoring across multiple data streams in order to monetize the discoveries and insights. Motif discovery and deep learning platforms are emerging to visualize sensor data, to search for patterns and to build application that can monitor real time streams efficiently. In his session at @ThingsExpo, ...
Enterprise networks are complex. Moreover, they were designed and deployed to meet a specific set of business requirements at a specific point in time. But, the adoption of cloud services, new business applications and intensifying security policies, among other factors, require IT organizations to continuously deploy configuration changes. Therefore, enterprises are looking for better ways to automate the management of their networks while still leveraging existing capabilities, optimizing perf...
Internet of @ThingsExpo has announced today that Chris Matthieu has been named tech chair of Internet of @ThingsExpo 2016 Silicon Valley. The 6thInternet of @ThingsExpo will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA.
Early adopters of IoT viewed it mainly as a different term for machine-to-machine connectivity or M2M. This is understandable since a prerequisite for any IoT solution is the ability to collect and aggregate device data, which is most often presented in a dashboard. The problem is that viewing data in a dashboard requires a human to interpret the results and take manual action, which doesn’t scale to the needs of IoT.
When building large, cloud-based applications that operate at a high scale, it’s important to maintain a high availability and resilience to failures. In order to do that, you must be tolerant of failures, even in light of failures in other areas of your application. “Fly two mistakes high” is an old adage in the radio control airplane hobby. It means, fly high enough so that if you make a mistake, you can continue flying with room to still make mistakes. In his session at 18th Cloud Expo, Lee...
Continuous testing helps bridge the gap between developing quickly and maintaining high quality products. But to implement continuous testing, CTOs must take a strategic approach to building a testing infrastructure and toolset that empowers their team to move fast. Download our guide to laying the groundwork for a scalable continuous testing strategy.