Fitch: No Rating Impact on Millicom from Colombian Merger Announcement
MONTERREY, Mexico -- February 6, 2013
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
Fitch currently rates MIC and to MIC Africa BV as follows:
--Local Currency Issuer Default Rating (IDR) 'BB+';
--Foreign Currency IDR 'BB+'.
The Rating Outlook is Stable.
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