Axtel SAB (AXTELCPO), Mexico’s second-largest land-line phone carrier, is considering selling its wireless towers or long-distance fiber network to raise as much as $300 million and avoid a default on its debt.
Axtel would rent the assets under a sale-leaseback deal, Investor Relations Director Adrian de los Santos said today in an interview, without giving a timeline. The San Pedro Garza Garcia, Mexico-based carrier, which is also weighing a share sale, must repay $825 million of debt by 2019, according to data compiled by Bloomberg.
The company needs cash after cutting prices to defend its market share against billionaire Carlos Slim’s America Movil (AMXL) SAB. Axtel has 1.04 million phone lines in Mexico, lagging behind the 14.6 million of America Movil’s Telmex unit.
“They have to do something,” said Manuel Jimenez, an analyst at Banorte Ixe Casa de Bolsa in Mexico City. “They’re very squeezed in terms of cash and they’re very leveraged.”
Selling the towers would be preferable because they’re not essential assets to run the business, Jimenez, who advises selling Axtel shares, said in a phone interview today. A sale of parts of the fiber network would be less optimal, he said.
Standard & Poor’s downgraded Axtel’s debt one level today to CCC+, or seven levels below investment grade, citing weakening earnings due to competition.
Axtel has a $60 million syndicated loan due in 2015, $275 million in bonds due in 2017 and $490 million in bonds due in 2019, according to data compiled by Bloomberg. While it also has access to a revolving credit line of $40 million, it expects to be able to draw down $20 million of that credit over the next 18 months because of its current liquidity situation and terms negotiated with lenders.
Yields on Axtel’s bonds due in 2017 have surged 598 basis points, or 5.98 percentage point, to 26.01 percent in the past month, the steepest selloff in Mexico, according to data on the Bloomberg. The shares rose 1.7 percent to 2.44 pesos at the close in Mexico City, paring their drop this year to 45 percent.
The assets for sale would allow a buyer to lease capacity to Axtel and its rivals. Many of Axtel’s 1,000 wireless towers have space for a second or third phone company to install equipment, de los Santos said.
Axtel offers a wireless Internet service, WiMax, to residential and business users. Some of its towers also have equipment for various other wireless technologies used by business customers for internal communications. The towers could be used for several services, including mobile-phone networks, de los Santos said.
The company isn’t considering selling its government licenses to use wireless airwaves for WiMax and other technologies, de los Santos said. Those assets wouldn’t be as attractive to a buyer because they wouldn’t have enough capacity to lease to multiple phone companies, he said.
Axtel, which drew the syndicated loan from five banks, is seeking advice from some of them, de los Santos said. The banks are Citigroup Inc. (C)’s Mexican unit Banamex, Grupo Financiero Banorte SAB, Credit Suisse Group AG, ING Groep NV and Standard Bank Plc, he said, without identifying the advising banks.
The company, which paid a record $78 million in interest in the year ended June 30, still has about $66 million of interest payments due in the next eight months. The amount exceeds its cash reserves of about $64 million.
Axtel is also considering a plan to induct a partner into its information-technology services unit. An outside investor would provide the funds to pursue growth in that business, Chief Financial Officer Felipe Canales said last month on a conference call.
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