facebook
linkedin
twitter
About Us
  • BFSI
  • Energy
  • Infocom
  • Mining
  • Venture
  • Industry
  • Travel
  • Civic
  • Food, Health, Ag
  • Real Estate
  • Responsibility
  • Economy
  • Law & Justice
  • Interview
  • Analysis

Fitch Affirms Tigo & UNE’s Parent Millicom Cellular As BB+, Stable Outlook

Posted OnJanuary 9, 2016
By :Loren Moss
Comment: Off
Tag: business wire, capex, colombia, epm, fitch, fitch ratings, guatemala, m&a, medellin, mic, MIC SDB, mic:sdb, mic.se, millicom, millicom debt, millicom ebitda, MILLICOM INT. CELLULAR SDB, millicom international cellular, paraguay, sdb, SE0001174970, STO:MIC-SDB, tigo, tigo guatemala, une, une epm

CHICAGO—(Business Wire)–Fitch Ratings has affirmed the long-term foreign and local currency Issuer Default Ratings (IDRs) of Millicom International Cellular, S.A. (Millicom) (STO:MIC-SDB) at ‘BB+’ with a Stable Outlook. Fitch has also affirmed Millicom’s senior unsecured debt at ‘BB+.’

Millicom operates in Colombia under the Tigo brand, and jointly owns Medellin’s UNE with municipally owned EPM.

Millicom’s ratings reflect the company’s geographical diversification, strong brand recognition and network quality, all of which have contributed to its leading market positions in key markets, steady subscriber growth, and solid operational cash flow generation. In addition, the rapid uptake in subscribers’ data usage, as well as Millicom’s ongoing expansion into the under-penetrated fixed-line services bode well for its medium- to long-term revenue growth.

Despite these diversification benefits, Millicom’s ratings are constrained by the company’s presence in countries in Latin America and Africa with low sovereign ratings. The ratings are also tempered by the recent increase in the company’s financial leverage due to M&A activities, historically high shareholder returns, and debt allocation between subsidiaries and the holding company.

While operational fundamentals and key financial metrics are stable, the ongoing investigation regarding the improper payment on behalf of Tigo Guatemala is credit negative. The timeline or the magnitude of the potential impact stemming from this issue remains largely uncertain at this time. Fitch will closely monitor the situation and take immediate action, if necessary, when details become available.

KEY RATING DRIVERS

Leading Market Positions:

Millicom has retained its market leadership in most of its key cash-generating operating companies in Latin America and we expect these positions to remain intact over the medium term backed by its extensive network quality, strong service quality and brand recognition. The company has maintained a steady subscriber base expansion, which was 7% during the first nine months of 2015 (9M15) compared to the level at end-2014, and its increasing investment into fixed-line operation will help acquire more revenue-generating units going forward. As of September 2015, Millicom maintained its largest market positions in its key cash-generating mobile markets, such as Guatemala, Paraguay, and Honduras.

Solid Performance:

Millicom has achieved a stable revenue and EBITDA improvement during 9M15, driven by continued subscriber expansion, solid growth in its fixed-line operation, and the improved cost structure. On a constant currency basis, the company has achieved service revenue growth of about 6% during 9M15 while improving its EBITDA margin to 33.4% from 32.7% during the same period, backed by its efforts to rein in marketing and holding company corporate costs. Excluding the currency impact, Fitch estimates that the company’s EBITDA has grown by close to 10% during the period, which is a noticeable improvement compared to its consistent EBITDA margin erosion until 2014 due to competitive pressures.

Ongoing FX Headwind:

Millicom’s recent solid performance has been largely diluted by the ongoing local currency depreciation against the U.S. dollar, the reporting currency of the company. During the 3Q15, the average local currency depreciation in the company’s operational geographies was 13.5% compared to a year ago, with the largest impact seen in Colombia with 52% and Paraguay with 23% among the key subsidiaries. As a result, its reported revenues fell by 1.3% during 9M15, while EBITDA generation managed to grow by just 0.8%.

Currency mismatch is also high for Millicom with regard to its debt structure, as 75% of its total debt is denominated in US Dollars (USD) while its cash flow generation is predominantly based in local currency. Positively, we believe that this risk is manageable, as the company has stable cash flow generation without any sizable USD bond maturities until 2020, while its access to international capital markets have historically been solid.

Diversifying Revenue Mix:

Millicom’s growth strategy will be increasingly centered on mobile data, fixed internet and pay-TV services as it tries to alleviate pressure on the traditional voice/SMS revenues. The mobile data customer base reached 29% of total subscribers as of Sept. 30, 2015, from 20% as of end-2013, which supported 25% mobile data revenue growth during 9M15, compared to a year ago. Broadband and pay-TV businesses also maintained solid growth, largely due to UNE EPM Telecomunicaciones S.A. in Medellín, as the segmental revenues grew by 116% during the same period. As this trend continues, Fitch forecasts mobile service revenues to continue to fall well below 65% of total revenues over the medium term, which compares to 83% in 2013.

Increased Leverage:

The company’s leverage has increased in recent years due to M&A activities, mainly the merger in August 2014 between its Colombian subsidiary and UNE, the Colombian fixed-line operator, and historically high shareholder distributions. The company’s net leverage, measured by adjusted net debt-to-EBITDAR including minority shareholder dividend, was 2.5x as of Sept. 30, 2015; this compares unfavorably to 1.4x at end-2012. On a proportionate consolidation basis, the net leverage ratio was 2.3x during the same period.

Positively, Fitch forecasts Millicom’s leverage to gradually fall over the medium term as the company continues to refrain from aggressive shareholder payouts amid EBITDA improvement. The company paid only $264 million USD (all quoted $ amounts in this article are US Dollar denominated) in dividends annually in 2013 and 2014, which was a sharp reduction from $731 million including share repurchase in 2012 and $991 million in 2011. In addition, CAPEX should remain relatively flat at around $1.3 billion over the medium term, representing about 18% of revenues, which is a decline from 22.5% in 2013. These will lead to neutral to modest positive free cash flow (FCF) generation and help the company reduce its leverage moderately over the medium term, barring any material financial impact from the ongoing legal investigation.

Concentration in Low-Rated Sovereigns:

Despite the diversification benefit, Millicom’s ratings are tempered by its operational footprint in countries in Latin America and Africa with low sovereign ratings and GDP per capita. The operational environment in these regions, in terms of political and regulatory stability and economic conditions, tend to be more volatile than developed markets, which could have an adverse effect on Millicom’s operations. This also adds currency mismatch risk as 75% of Millicom’s total debt was based on US Dollars while most of its cash flows are generated in local currencies in each country.

Key Assumptions:

–Mid-single-digit annual revenue growth over the medium term;

–Cable & Digital Media segment to grow to well over 25% of consolidated revenues over the medium term, compared to 16% in 2013, largely due to UNE consolidation;

–EBITDA margin to remain stable at around 30%-31% range in 2016, reflecting the minority dividend payment;

–Annual CAPEX to remain at about $1.3 billion over the medium term in line with the 2014 level;

–No significant increase in shareholder distributions in the short- to medium-term with annual dividend payments remaining at $264 million.

Rating Sensitivities:

Negative rating action can be considered in case of an increase in net leverage to 3.0x without a clear path to deleveraging due to any one or combination of the following: sustained negative free cash flow generation due to competitive/regulatory pressures amidst market maturity, sizable M&A activities, and aggressive shareholder distributions.

Also, any potential material financial impact from the ongoing investigation regarding the improper payment on behalf of its joint venture operation in Tigo Guatemala would pressure the ratings.

In Fitch’s analysis for Millicom’s financial profile, the group’s proportionately consolidated key financial metrics and the amount and the geographical breakdown of the upstream cash flow income from its subsidiaries will remain key considerations.

Positive rating action in the short- to medium-term is unlikely given the company’s higher leverage level than the past, its operational concentration in low-rated countries, and the ongoing investigation.

A positive rating action could be considered in case of a material improvement in diversification of cash flow generations, mainly from investment-grade-rated countries, and stronger market positions and stable positive free cash flow generation leading to consistent recovery in its leverage.

Liquidity:

Millicom’s liquidity profile is good given its large cash position, which fully covered the short-term debt as well as its well-spread debt maturities with an average life of 5.6 years. As of Sept. 30, 2015, the consolidated group’s readily available cash was $724 million, which compares to its short-term debt of $191 million. Fitch does not foresee any liquidity problem for both the operating companies and the holding company given operating companies’ stable cash generation and their consistent cash upstream to the holding company.

In addition, Millicom has a $500 million undrawn credit facility which further bolsters its liquidity. Millicom also has a good track record in terms of its access to capital markets when in need of external financing, which supports its liquidity management.

DON'T MISS OUT: The only English-language Colombia news that's strictly business, markets, & investment!
Join global executives & investors by subscribing to our FREE weekly updates
I agree to have my personal information transferred to MailChimp ( more information ) DISCLAIMER: Protección de Datos Personales Artículo 15 de la Constitución Política de Colombia, ley 1581 de 2012 y decreto 1377 de 2013.
We will never spam you or share your email address ¡Nunca Jamás!

Share the news!

  • Facebook
  • Twitter
  • Print
  • Email
  • WhatsApp
  • LinkedIn
  • Skype

Related

Share your thoughts:

comments

Loren Moss
About the Author
Loren Moss is the founder and publisher of Finance Colombia. He has over 20 years of international business experience, including over a decade of experience in securities, insurance, and commercial real estate, at the institutional and international level.
  • google-share
Previous Story

Boating Trade Congress To Debut April 27-29 In Cartagena With International Marine Industry Backing

Next Story

Minminas, Colombia’s Mining Ministry Obtains $30 Million USD IDB Loan To Modernize Procedures

Related Posts

Tecnoglass window-making factory in Barranquilla, Colombia. (Photo credit: Liliana Padierna)
0

Tecnoglass To Hold Q1 2021 Earnings Call The Morning Of May 7

Posted OnApril 13, 2021
, ByLoren Moss
PharmaCielo horticultural worker harvests THC dominant and unique cultivar (CNW Group/PharmaCielo Ltd.)
0

Colombian Cannabis Cultivator PharmaCielo Closes $13.5 Million CAD Capital Raise

Posted OnApril 13, 2021
, ByLoren Moss
After 1 week, Alejandro Calderón Chatet will no longer be CEO of EPM.
0

EPM Governance Crisis Deepens: New CEO Alejandro Calderón Chatet Resigns, 1 Week After Being Appointed

Posted OnApril 12, 2021
, ByLoren Moss




RECENT

POPULAR

COMMENTS

Tecnoglass window-making factory in Barranquilla, Colombia. (Photo credit: Liliana Padierna)

Tecnoglass To Hold Q1 2021 Earnings Call The Morning Of May 7

Posted On April 13, 2021

Etek Launches Identity & Access Management Service

Posted On April 13, 2021

GCA Airlines Files To Fly New Routes To Bucaramanga, Santa Marta, San Andrés & Pereira, Colombia

Posted On April 13, 2021
PharmaCielo horticultural worker harvests THC dominant and unique cultivar (CNW Group/PharmaCielo Ltd.)

Colombian Cannabis Cultivator PharmaCielo Closes $13.5 Million CAD Capital Raise

Posted On April 13, 2021
Photo from Twitter

Support for Colombian Fugitive Alex Saab Turns Out To Be Nigerian Troll Farm

Posted On April 13, 2021
Photo montage courtesy EPM

EPM’s Board of Directors Resign En Masse, Creating Crisis For Mayor Daniel Quintero

Posted On August 17, 2020

Court Blocks Colombia’s $370 Million USD Emergency Loan To Bankrupt Avianca Airlines

Posted On September 12, 2020

AVIANCA IS BANKRUPT

Posted On May 10, 2020

In Deepening Crisis At EPM, Labor Union Demands CEO Explain Private Gym, Luxury Office Remodel Despite Austerity Orders

Posted On August 25, 2020

Declan Ryan Says Viva Air Not Being Treated Fairly By Colombian Government: Exclusive Interview

Posted On September 3, 2020
Avatar

[…] 2020 — SINPRO, EPM’s largest...

Posted On April 12, 2021
Avatar

[…] Sky Airline each may operate 4...

Posted On April 6, 2021
Avatar

[…] didn’t know that; that...

Posted On April 6, 2021
Avatar

[…] during his mayoral campaign...

Posted On April 6, 2021
Avatar

[…] existing Viva aircraft are...

Posted On March 30, 2021

Watch This!

Book With Us

Consider Advertising With Us

Click here to visit Expat Group's English site

Subscribe Free

don't forget to include "http://"
* = required field
Your Background / Function








unsubscribe from list

RECENT

POPULAR

COMMENTS

Tecnoglass window-making factory in Barranquilla, Colombia. (Photo credit: Liliana Padierna)

Tecnoglass To Hold Q1 2021 Earnings Call The Morning Of May 7

Posted On April 13, 2021

Etek Launches Identity & Access Management Service

Posted On April 13, 2021

GCA Airlines Files To Fly New Routes To Bucaramanga, Santa Marta, San Andrés & Pereira, Colombia

Posted On April 13, 2021
Photo montage courtesy EPM

EPM’s Board of Directors Resign En Masse, Creating Crisis For Mayor Daniel Quintero

Posted On August 17, 2020

Court Blocks Colombia’s $370 Million USD Emergency Loan To Bankrupt Avianca Airlines

Posted On September 12, 2020
copa airlines

Copa Airlines Raising $350 Million USD War Chest Via Private Notes Offering

Posted On April 27, 2020
Avatar

[…] 2020 — SINPRO, EPM’s largest...

Posted On April 12, 2021
Avatar

[…] Sky Airline each may operate 4...

Posted On April 6, 2021
Avatar

[…] didn’t know that; that...

Posted On April 6, 2021

Watch This!

Contact Us (Click the image):

Book With Us

Pages

  • About Us
  • Colombia Events, Conferences, Festivals and Important Dates
  • Contact Us
  • main
  • Media Partnerships
  • Privacy Policy
  • Whatsapp test page
Copyright 2014-2020 Finance Colombia All Rights Reserved. We may earn commissions from qualifying purchases.
WhatsApp us
loadingCancel
Post was not sent - check your email addresses!
Email check failed, please try again
Sorry, your blog cannot share posts by email.