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Traders Bet Slim’s TV Failure to Be Short-Lived: Mexico Credit

Billionaire Carlos Slim
Investors are betting billionaire Carlos Slim, seen here, who controls America Movil and its fixed-line unit Telefonos de Mexico SAB, will overcome government efforts to curb the companies’ market share. Photographer: Chris Goodney/Bloomberg

Speculation America Movil SAB will win an appeal to overturn a regulator decision denying its fixed-line unit a TV license is helping spark a rally in the company’s bonds.

Yields on dollar bonds due in 2020 sold by America Movil, the biggest wireless carrier in the Americas, fell four basis points since May 26, the day before the government rejected the license request. The average yield on Mexican corporate debt climbed three basis points in the same period while borrowing costs for Latin American telecommunications companies jumped 9 through yesterday, according to JPMorgan Chase & Co. and Credit Suisse Group AG.

Investors are betting billionaire Carlos Slim, who controls America Movil and its fixed-line unit Telefonos de Mexico SAB, will overcome government efforts to curb the companies’ market share. America Movil was fined $1 billion by Mexico’s antitrust commission on April 15 for anticompetitive practices. Citigroup Inc. and Scotia Capital predict Telmex, as Mexico’s biggest phone carrier is known, will obtain the TV license in the next nine months.

“They will get the license because it’s a matter of opening markets and providing greater competition,” Alejandro Hernandez, who helps manage about $1.5 billion of debt at Interacciones Casa de Bolsa SA in Mexico City, said in a telephone interview. “Investors are waiting for the license, which is going to happen sooner or later.”

America Movil’s bonds yield 15 basis points, or 0.15 percentage point, more than Mexican government notes due the same year, according to data compiled by Bloomberg. The gap was 7 a month ago.

Safer Than Government

The company’s bonds are also benefiting from rising investor demand for higher-rated emerging-market debt, Hernandez said. America Movil is rated A2, two steps above the Mexican government and five levels from the highest investment-grade ranking, by Moody’s Investors Service.

The yield on Telmex’s dollar bonds due in 2019 has dropped one basis point since May 26 to 4.44 percent, according to data compiled by Bloomberg.

An America Movil official declined to comment. An official at the Communications Ministry didn’t return a phone call seeking comment. In response to an America Movil request, the antitrust agency ruled June 3 it would review its decision to assess the $1 billion fine.

Fee Reduction

The Communications and Transportation Ministry ruled against Telmex’s bid for a TV license on May 27, citing deficiencies in its connections with rivals’ networks and a failure to provide the required information. The decision came after Mexico City-based Telmex obtained a court order last month that compelled the government to rule on the TV license request, which it has sought since 2006.

The rejection follows a decision by regulators on March 16 to side with competitors by cutting in half the fees that America Movil sought to charge rivals to connect calls. America Movil, also based in Mexico City, will face new rules that could force it to cut prices as soon as this month, Mony de Swaan, the Federal Telecommunications Commission president, said in a June 2 interview in Mexico City.

“There’s been negative news about America Movil and Telmex that have not been reflected in the yields,” Araceli Espinosa, a debt analyst at Scotia Capital in Mexico City, said in a telephone interview. “Some investors might be expecting that Telmex will get the TV license.”

America Movil, spun off from Telmex in 2001 by Slim, the world’s richest person according to Forbes magazine, may get the license as soon as the first quarter of next year, driving yields on the company’s debt to about 4 percent, Espinosa said.

Triple Play

Telmex, which said May 27 it will challenge the government’s rejection in court, is seeking to offer TV services to help stem a loss of customers to competitors such as Grupo Televisa SA, whose cable units offer packages of phone, Internet and TV service, known as triple play. Telmex, which accounted for about 17 percent of America Movil revenue in the first quarter, has 15.6 million phone lines, or about 80 percent of the Mexico’s land-line market.

America Movil stockholders have shown more concern than bond investors. America Movil has slid 5.2 percent on the Mexico City bourse since May 26, compared with a 1.4 percent drop in the benchmark IPC index.

The extra yield investors demand to own Mexican government dollar bonds instead of U.S. Treasuries narrowed 13 basis points to 134 at 5:12 p.m. New York time, according to JPMorgan.

New Subscribers

Yields on futures contracts for the 28-day TIIE interbank rate due in December rose two basis points to 5.02 percent. The peso gained 0.6 percent to 11.7730 per U.S. dollar.

The cost to protect Mexican debt against non-payment for five years fell one basis point to 106, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent if a government or company fails to adhere to its debt agreements.

A combination of satellite and fiber-optic TV services would give Telmex about 3.8 million subscribers by 2015 if it gets permission to offer video, James Rivett, a Citigroup Inc. analyst in New York, wrote in a June 6 research note. Sales of TV service would generate 5.94 billion pesos in 2015, Rivett wrote. He estimates Telmex will get permission to offer TV service in the second half of this year.

“The ability to offer integrated services would translate into a stronger competitive position for America Movil,” Sergio Rodriguez, a Fitch Ratings analyst, said in a telephone interview from Monterrey, Mexico. The triple play option “allows companies to protect the customer loyalty, which translates in stronger earnings,” he said.

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