TEXT-Fitch affirms America Movil at 'A'
June 12 - Fitch Ratings has affirmed America Movil's SAB de CV (AMX) and Telefonos de Mexico's SAB de CV (TMX) local and foreign currency Issuer Default Ratings (IDRs) and senior unsecured notes at 'A'. Fitch has also affirmed AMX, TMX and Telmex Internacional SAB de CV (Telint) National Scale Ratings and senior unsecured Certificados Bursatiles at 'AAA(mex)'. The Rating Outlook is Stable. A full list of rating actions is provided at the end of this release. AMX and its subsidiaries' ratings are supported by diversified fixed and wireless operations across Latin America, multiple service platforms, large scale, strong free cash flow, ample financial flexibility and policy of having a sound financial and liquidity profile. The ratings incorporate the expectation that management will maintain a relatively conservative financial profile over the long term. A strong competitive environment and declining prices in voice services tempers the ratings. The foreign currency IDR is rated above Mexico's country ceiling of 'A-', the country where the company is domiciled, given the geographical diversification where 52% of EBITDA is generated outside Mexico and approximately 85% of EBITDA comes from investment grade countries; in addition a strong credit profile with committed credit facilities, mitigates transfer and convertibility risks. AMX's credit quality is underpinned by its Mexican wireless and fixed units which account for approximately 35% of revenues and 48% of EBITDA for the 12 months ended March 31, 2012. Recent rulings by Mexican authorities have had a negative result on America Movil for both fixed and wireless businesses. However, these negative outcomes should not be material to credit quality on a consolidated basis. In addition, the MXN12 billion fine imposed by the Mexican antitrust authority was revoked recently. Fitch believes that if the fine was to be enforced, it is manageable for AMX given its revenue diversification, strong cash flow generation and financial profile. The company's diverse revenue stream, generated by wireless and wireline businesses outside Mexico, provides the company with cash flow and currency diversification. Fitch believes a geographically diversified portfolio of assets and services lowers business risk and cash flow volatility. For the 12 months ended March 31, 2012, 85% of EBITDA was generated by Mexico, Brazil and Colombia (including Panama). For this period wireless revenues accounted for approximately 64% of total revenues and the remainder by fixed services. KPN Investment Manageable: In Fitch's opinion, the recent announcements made by AMX to invest in European telecom companies follows an approach to explore operations in new geographies at reasonable prices. These investments are expected to help AMX assess whether in the long term they should or should not continue increasing its presence in Europe. Fitch views the potential acquisition of a 27.7% stake in Royal KPN NV (KPN) through a tender offer that ends on June 15, 2012 to be manageable, given AMX's financial profile and cash flow generation. If successful, AMX should pay approximately EUR2.8 billion to increase its stake to 27.7% from 5.1% (7.3% as of June 11, 2012) and should receive close to 11% in dividend yield. Fitch's long term expectation of leverage for AMX incorporates that net debt to EBITDA will be at 1.0 times (x). For the 12 months ended March 31, 2012, AMX's total debt to EBITDA was 1.5x, while net debt to EBITDA approximated 1.2x. For this period total debt amounted to MXN378 billion (USD29.5 billion) of which 89% is debt issued in the capital markets and 11% is bank debt. AMX's currency risk exposure strategy over the past few years is to have the net debt in Mexican Pesos after considering hedges. The company's liquidity position is strong. As of March 31, 2012, cash balances reached MXN60 billion and unused committed credit facilities were USD4 billion on top of cash from operations (CFO) over the past 12 months of MXN185 billion. This favorably compares with maturities for the next three years of MXN81.5 billion. In addition, the company's access to capital markets and extended maturity profile adds to financial flexibility. Free cash flow is expected to remain strong over the medium term, underpinned by stable capital expenditures in the next few years of approximately USD9.0 billion-USD9.5 billion. Funds flow from operations (FFO) still has some room to grow driven by increased mobile penetration, higher adoption and usage of mobile data and growth in fixed operations outside Mexico. Free cash flow may be returned to shareholders absent any acquisitions. With respect to acquisitions, Fitch believes AMX will follow a disciplined approach to its capital structure and the valuation of any potential acquisition. Key Rating Drivers: A positive rating action seems limited at the time given the rating level and last upgrade in June of 2011. On the other hand, a negative rating action can occur if net leverage increases between 1.5x-2.0x on a sustained basis due to operational or strategic factors. Fitch has taken the following rating actions: America Movil --Local currency IDR affirmed at 'A'; --Foreign currency IDR affirmed at 'A'; --Senior notes issuances affirmed at 'A'. --Mexican national scale rating affirmed at 'AAA(mex)'; --Certificados Burstiles issuances with ticker symbols AMX 10, AMX 10-2 and AMX 10U affirmed at 'AAA(mex)'; --30 Million UF-denominated Chilean Notes Program, including Series A and D issuances for a combined amount of UF9 million, affirmed at 'AA+(cl)'. Telefonos de Mexico --Local currency IDR affirmed at 'A'; --Foreign currency IDR affirmed at 'A'; --Senior notes issuances affirmed at 'A'. Telmex Internacional --Mexican national scale rating affirmed at 'AAA(mex)'; --Mexican national scale short term rating affirmed at 'F1+(mex)'; --MXN20 billion Dual Certificados Bursatiles Program affirmed at 'AAA(mex)/F1+(mex)'; --Certificados Burstiles issuances with ticker symbols TELINT09 and TELINT09-2 affirmed at 'AAA(mex)'. Additional information is available 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable Criteria and Related Research: --'Rating Global Telecoms Companies', Sept. 16, 2010; --'Corporate Rating Methodology', dated Aug. 12, 2011; --'National Ratings Criteria', Jan. 19, 2011; --'Rating Corporates Above the Country Ceiling', Jan. 30, 2012; --'Parent and Subsidiary Rating Linkage (Fitch's Approach to Rating Entities Within a Corporate Group Structure)', Aug. 12, 2011.; Applicable Criteria and Related Research: Rating Global Telecoms Companies - Sector Credit Factors Corporate Rating Methodology National Ratings Criteria Parent and Subsidiary Rating Linkage
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