Fitch Affirms America Movil's IDR's at 'A'; Outlook Stable

Fri Jun 7, 2013 1:17pm EDT

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Fitch Affirms America Movil's IDR's at 'A'; Outlook Stable

Fitch Ratings has affirmed America Movil's SA de CV (AMX) and Telefonos de Mexico's SA de CV (TMX) local and foreign currency Issuer Default Ratings (IDRs) and senior unsecured notes at 'A'. Fitch has also affirmed AMX and Telmex Internacional SAB de CV (Telint) National Scale Ratings and senior unsecured Certificados Bursatiles and notes at 'AAA(mex)'. The Rating Outlook is Stable. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS

America Movil's ratings incorporate its diversified fixed and wireless operations across Latin America, multiple service platforms, large scale, strong free cash flow, ample financial flexibility, solid liquidity and sound financial profile. The ratings take into account Fitch's expectation that management will maintain a relatively conservative financial profile over the long term. A strong competitive environment underpinned by increasing regulation in Mexico and Colombia as well as declining prices in voice services temper the ratings. Under Fitch's approach to rating entities within a corporate group structure, AMX, TMX and Telint are rated the same as the linkage among all three is considered strong. Some of the factors for the strong linkage include Fitch's view that TMX and TELINT are operationally integral to AMX's core business, strategically important and that America Movil has provided tangible financial support.

America Movil's geographical diversification results in 53% of EBITDA for the last 12 months ended Mar. 31, 2013 was generated outside Mexico and more than 85% of EBITDA comes from investment grade countries. In Fitch's view a strong credit profile with committed credit facilities mitigates transfer and convertibility risks. AMX leverage increased after the investments in Royal KPN NV (KPN) and Telekom Austria (TKA) during 2012. Fitch does not anticipate any more cash injections to KPN and TKA nor expect any dividends from them in the medium term. AMX recent participation in the KPN rights offering during May of 2013 resulted in a cash outflow for approximately EUR840 million.

Increased Regulatory Pressure

Fitch believes that AMX has flexibility to manage its capital structure and leverage levels due to its cash flow generation and commitment to maintain a sound financial profile given the current regulatory pressures in Mexico and Colombia. The upcoming telecommunications law in Mexico is expected to become enforced during this year once the secondary laws are passed by congress. While the final outcome and effects on AMX are still uncertain, Fitch will expect the outcome of the secondary laws to put some pressure on the Mexican operating results.

Regulatory issues in Colombia are expected by Fitch to have a slight negative impact on America Movil's operating results. Impact on Colombian operating results should be minimal due to the recent enforcement of asymmetric rates as interconnection revenues are low. In addition, the exclusion from the AWS band auction and allowing AMX to participate only in the 2.5Ghz band should have a minimal effect on capex given the actual tower coverage in Colombia.

America Movil's credit quality is supported by its Mexican wireless and fixed units that account for approximately 34% of revenues and 47% of EBITDA for the 12 months ended March 31, 2013. The company's diverse revenue stream, generated by wireless and wire line businesses outside Mexico, provides the company with cash flow and currency diversification. Fitch views that a geographically diversified portfolio of assets and services lowers business risk and cash flow volatility. For the 12 months ended March 31, 2013 79% of EBITDA was generated by Mexico, Brazil and Colombia. For this period, consolidated wireless revenues accounted for approximately 64% of total revenues and the remainder by fixed services.

Fitch expects America Movil's net debt to EBITDA to remain stable during 2013 and to trend slightly downwards during 2014. Long-term expectation of net debt to EBITDA is to converge at approximately 1.2x. This level is slightly higher than previous expectation of 1.0x, however in Fitch's view the level is still consistent with the rating category. For the 12 months ended March 31, 2013 America Movil's total debt to EBITDA was 1.6x, while net debt to EBITDA approximated 1.4x. At March 31, 2013 total debt amounted to MXN401 billion (USD32.5 billion) of which 97% is debt issued in the international and domestic capital markets and approximately 90% has a fixed rate. America Movil's currency risk exposure strategy is to have a net currency exposure to match the majority of its cash flow.

Historically AMX has maintained a strong liquidity position. As of March 31, 2013 cash balances reached MXN37 billion and have unused committed credit facilities for USD4 billion on top of cash from operations (CFO) over the past 12 months of MXN187 billion. This favorably compares with maturities for the next three years of MXN71.6 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 USD10.0 billion. Fitch believes cash flow from operations should be used to maintain a conservative capital structure and to return excess cash flow, in the absence of acquisitions, to shareholders in the form of dividends or share buybacks.

RATING SENSITIVITY

A positive rating action is unlikely given the actual leverage levels which are high to historical levels. A negative rating action can be triggered if net leverage increases between 1.5x-2.0x on a sustained basis due to operational or strategic factors.

Fitch has affirmed the following:

America Movil
--Local currency IDR at 'A';
--Foreign currency IDR at 'A';
--Senior notes issuances at 'A'.
--Mexican national scale rating at 'AAA(mex)';
--Certificados Burstiles issuances with ticker symbols AMX 10, AMX 10-2 and AMX 10U at 'AAA(mex)';
--AMX senior notes 1122 due 2022 at 'A' and 'AAA(mex);
--30 Million UF-denominated Chilean Notes Program, including Series A and D issuances for a combined amount of UF9 million, at 'AA+(cl)'.
Telefonos de Mexico
--Local currency IDR at 'A';
--Foreign currency IDR at 'A';
--Senior notes issuances at 'A'.
Telmex Internacional
--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)'.

Additional information is available 'www.fitchratings.com'.

Applicable Criteria and Related Research:
--'Rating Telecoms Companies' Aug. 09, 2012;
--'Corporate Rating Methodology' Aug. 08, 2012;
--'National Ratings Criteria' Jan. 19, 2011
-- Rating Non-Financial Corporates Above the Country
Ceiling' Jan. 25, 2013;
--'Parent and Subsidiary Rating Linkage (Fitch's Approach to Rating Entities Within a Corporate Group Structure)' Aug. 08, 2012.

Applicable Criteria and Related Research:

Rating Telecom Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682323

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

National Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885

Rating Non-Financial Corporates Above the Country Ceiling

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=699771

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685552

Additional Disclosure
Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=793154

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Fitch Ratings
Media Relations
Elizabeth Fogerty, New York
Tel: +1 (212) 908 0526
Email: elizabeth.fogerty@fitchratings.com
or
Primary Analyst
Sergio Rodriguez, CFA
Senior Director
Fitch Mexico S.A. de C.V.
+52-81-8399-9100,
Prol. Alfonso Reyes 2612
Monterrey, Mexico
or
Secondary Analyst
John Culver, CFA
Senior Director
+1-312-368-3216
or
Committee Chairperson
Alberto Moreno
Senior Director
+52-81-8399-9100