KEY RATING DRIVERS
AMX's ratings reflect its position as the largest wireless service provider in
Medium Term Net Leverage Solid at 1.5x
The ratings reflect AMX's commitment to reduce its net leverage to below 1.5x, which Fitch believes is achievable over the medium term given the company's solid FCF generation. The company is expected to keep financial discipline with respect to cash flow usage in order to achieve its financial target in the absence of any sizable acquisitions or significant increase in shareholder distributions. For the LTM ended
Regulatory Pressures in
AMX's Mexican operation is subject to asymmetrical regulations as a result of the ongoing telecom sector reform in which the company was declared 'preponderant' in
While the impact from the asset disposal can be better assessed when more details become available going forward, the reduction in cash flow generation in
Solid Operating Results
AMX has continued to maintain stable revenues and EBITDA growth during the first half of 2014 (1H'14) despite the increasing pricing pressures on voice and negative exchange rate movements in some of its key markets. The company has aggressively invested since 2011 in upgrading its fixed/mobile networks across the region to provide attractive bundled fixed product offerings, as well as to improve mobile data user base and revenues. As a result, the revenue contributions from fixed-line services, excluding voice, and wireless data represented 23% and 26% of the consolidated revenues, respectively, during the second quarter of 2014 (2Q'14), which are significant improvements from 15% and 17%, respectively, during the fourth quarter of 2011 (4Q'11). As these segments fully offset the declining voice revenues, AMX has managed to improve its revenues and EBITDA by 2.7% to MXN398 billion and 2.1% to MXN132 billion, respectively, in 1H'14 from a year ago.
AMX is likely to continue its solid positive FCF generation over the medium term, underpinned by stable cash flow from operations (CFFO), projected by Fitch to be around MXN190 billion annually in 2014 and 2015, fully covering the annual capex budget of MXN120 billion-MXN130 billion. The company's pre-dividend FCF would be used to maintain a conservative capital structure with a modest shareholder return in the form of dividends or share buyback. During 2013, the company's FCF amounted to MXN31 billion (
Negative: Future developments that may, individually or collectively, lead to a negative rating action include:
--Increased regulatory and competitive pressures across its operational geographies leading to significant erosion in its market positions and operating margins.
--Aggressive shareholder return policy in terms of both dividends and share buybacks.
--Sizable investments/acquisitions leading to weak cash generation over the medium to long term.
--Net leverage increasing above 1.5x-2.0x on a sustained basis as a result of the aforementioned factors.
Considerations that could lead to a positive rating action (Rating or Outlook):
Ratings upgrades are not likely in the short to medium term due to the competitive/regulatory operating environment, and increased leverage.
Fitch affirms the following ratings:
--Local currency IDR 'A';
--Foreign currency IDR 'A';
--Senior notes issuances 'A';
--Subordinated notes issuances 'BBB+';
--Mexican national scale rating 'AAA(mex)';
--Certificados Bursatiles issuances 'AAA(mex)';
--UF30 million Chilean Notes Program N#474, including Series A and D issuances for a combined amount of UF9 million, 'AA+(cl)'.
Telefonos de Mexico
--Local currency IDR at 'A';
--Foreign currency IDR at 'A';
--Senior notes issuances at 'A'.
--Mexican national scale rating at 'AAA(mex)';
--Mexican national scale short term rating at 'F1+(mex)';
--MXN20 billion Dual Certificados Bursatiles Program at 'AAA(mex)/F1+(mex)';
--Certificados Burstiles issuances with ticker symbol TELINT09-2 at 'AAA(mex)'.
Simultaneously, Fitch has withdrawn the 'A(exp)' and 'AAA(mex)(exp)' expected ratings on America Movil's MXN15 billion proposed senior notes due to the suspension of the expected debt issuance.
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology',
--'National Scale Rating Criteria',
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
National Scale Ratings Criteria
Source: Fitch Ratings
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