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At the same time, Fitch has withdrawn the IDRs of TF as the entity is not considered analytically meaningful for the credit quality of the notes which have been issued out of it and fully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
Wooed by the promise of faster innovation, lower TCO, and greater agility, businesses of every shape and size have embraced the cloud at every layer of the IT stack – from apps to file sharing to infrastructure. The typical organization currently uses more than a dozen sanctioned cloud apps and will shift more than half of all workloads to the cloud by 2018. Such cloud investments have delivered measurable benefits. But they’ve also resulted in some unintended side-effects: complexity and risk. ...
The Internet giants are fully embracing AI. All the services they offer to their customers are aimed at drawing a map of the world with the data they get. The AIs from these companies are used to build disruptive approaches that cannot be used by established enterprises, which are threatened by these disruptions. However, most leaders underestimate the effect this will have on their businesses. In his session at 21st Cloud Expo, Rene Buest, Director Market Research & Technology Evangelism at Ar...
"Loom is applying artificial intelligence and machine learning into the entire log analysis process, from start to finish and at the end you will get a human touch,” explained Sabo Taylor Diab, Vice President, Marketing at Loom Systems, in this SYS-CON.tv interview at 20th Cloud Expo, held June 6-8, 2017, at the Javits Center in New York City, NY.
It is ironic, but perhaps not unexpected, that many organizations who want the benefits of using an Agile approach to deliver software use a waterfall approach to adopting Agile practices: they form plans, they set milestones, and they measure progress by how many teams they have engaged. Old habits die hard, but like most waterfall software projects, most waterfall-style Agile adoption efforts fail to produce the results desired. The problem is that to get the results they want, they have to ch...
"We are a monitoring company. We work with Salesforce, BBC, and quite a few other big logos. We basically provide monitoring for them, structure for their cloud services and we fit into the DevOps world" explained David Gildeh, Co-founder and CEO of Outlyer, in this SYS-CON.tv interview at DevOps Summit at 20th Cloud Expo, held June 6-8, 2017, at the Javits Center in New York City, NY.
Cloud Expo, Inc. has announced today that Andi Mann and Aruna Ravichandran have been named Co-Chairs of @DevOpsSummit at Cloud Expo Silicon Valley which will take place Oct. 31-Nov. 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. "DevOps is at the intersection of technology and business-optimizing tools, organizations and processes to bring measurable improvements in productivity and profitability," said Aruna Ravichandran, vice president, DevOps product and solutions marketing...
With major technology companies and startups seriously embracing Cloud strategies, now is the perfect time to attend 21st Cloud Expo October 31 - November 2, 2017, at the Santa Clara Convention Center, CA, and June 12-14, 2018, at the Javits Center in New York City, NY, and learn what is going on, contribute to the discussions, and ensure that your enterprise is on the right path to Digital Transformation.
21st International Cloud Expo, taking place October 31 - November 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA, will feature technical sessions from a rock star conference faculty and the leading industry players in the world. Cloud computing is now being embraced by a majority of enterprises of all sizes. Yesterday's debate about public vs. private has transformed into the reality of hybrid cloud: a recent survey shows that 74% of enterprises have a hybrid cloud strategy. Me...
SYS-CON Events announced today that Enzu will exhibit at SYS-CON's 21st Int\ernational Cloud Expo®, which will take place October 31-November 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Enzu’s mission is to be the leading provider of enterprise cloud solutions worldwide. Enzu enables online businesses to use its IT infrastructure to their competitive advantage. By offering a suite of proven hosting and management services, Enzu wants companies to focus on the core of their ...
In 2014, Amazon announced a new form of compute called Lambda. We didn't know it at the time, but this represented a fundamental shift in what we expect from cloud computing. Now, all of the major cloud computing vendors want to take part in this disruptive technology. In his session at 20th Cloud Expo, Doug Vanderweide, an instructor at Linux Academy, discussed why major players like AWS, Microsoft Azure, IBM Bluemix, and Google Cloud Platform are all trying to sidestep VMs and containers wit...
With major technology companies and startups seriously embracing Cloud strategies, now is the perfect time to attend 21st Cloud Expo October 31 - November 2, 2017, at the Santa Clara Convention Center, CA, and June 12-14, 2018, at the Javits Center in New York City, NY, and learn what is going on, contribute to the discussions, and ensure that your enterprise is on the right path to Digital Transformation.
DevOps at Cloud Expo, taking place October 31 - November 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA, is co-located with 21st Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world. The widespread success of cloud computing is driving the DevOps revolution in enterprise IT. Now as never before, development teams must communicate and collaborate in a dynamic, 24/7/365 environment. There is no time to w...
Internet of @ThingsExpo, taking place October 31 - November 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA, is co-located with 21st Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world. The Internet of Things (IoT) is the most profound change in personal and enterprise IT since the creation of the Worldwide Web more than 20 years ago. All major researchers estimate there will be tens of billions devic...
Amazon started as an online bookseller 20 years ago. Since then, it has evolved into a technology juggernaut that has disrupted multiple markets and industries and touches many aspects of our lives. It is a relentless technology and business model innovator driving disruption throughout numerous ecosystems. Amazon’s AWS revenues alone are approaching $16B a year making it one of the largest IT companies in the world. With dominant offerings in Cloud, IoT, eCommerce, Big Data, AI, Digital Assista...
The taxi industry never saw Uber coming. Startups are a threat to incumbents like never before, and a major enabler for startups is that they are instantly “cloud ready.” If innovation moves at the pace of IT, then your company is in trouble. Why? Because your data center will not keep up with frenetic pace AWS, Microsoft and Google are rolling out new capabilities. In his session at 20th Cloud Expo, Don Browning, VP of Cloud Architecture at Turner, posited that disruption is inevitable for comp...