Entel Set for Worst Month Since 2002 Amid Junk-Rating Concern

  • Moody's cut sparks speculation further downgrades may come
  • Citigroup says Peru growth funding could spur capital increase

Empresa Nacional de Telecomunicaciones SA, the Chilean phone company whose controlling stakeholders include the billionaire Matte family, is posting the biggest monthly plunge since 2002 amid concern its credit rating will be cut to junk.

Shares of Chile’s second-largest mobile phone operator have tumbled 15 percent in February after Moody’s Investors Service downgraded the company to the lowest investment-grade level on Feb. 16, citing lower credit quality following its expansion. Since the acquisition of Nextel Peru in April 2013, Entel’s net-debt-to-Ebitda ratio surged the most among major telecommunications companies from emerging markets, according to data compiled by Bloomberg.

“Putting Entel on the border of becoming a junk bond scared local investors, who have been selling the stock,” Francisco Soto, the head of trading at brokerage Tanner Corredores de Bolsa SA, said by e-mail. “A capital increase can’t be ruled out if competition becomes more intense in Chile and it can’t make its Peruvian operation profitable in the medium term.”

Entel, which is betting on Peru to offset increasing competition in Chile, is investing to boost its market share in a country where billionaire Carlos Slim’s America Movil SAB and Telefonica SA already have a significant presence. Citi-Banchile, the joint research department of Citigroup Inc. and Banco de Chile, said Feb. 18 that the company may have to sell assets or raise capital to fund its Peruvian expansion. Entel last month posted its first loss since 1998.

Entel’s $800 million in dollar notes due in 2026 have fallen 3.9 percent in February, the worst performance of any Chilean investment-grade dollar bond. The company declined to comment on the potential for a capital increase or the sale of assets.

The company’s shares retreated 0.5 percent to 5,849 pesos Thursday, its lowest price since October 2008.

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