July 6, 2016 / 3:46 PM / 3 years ago

Fitch: Prospects of Wind/H3G Merger Approval Improved by Iliad Deal

(The following statement was released by the rating agency) LONDON, July 06 (Fitch) Fitch Ratings says that Iliad's agreement to buy Italian mobile assets as part of the plan to merge Wind Telecomunicazioni S.p.A. (WIND, B+/Stable) and 3 Italia (H3G) increases the chances of the merger obtaining regulatory approval. This transaction would address one of the key concerns the European anti-trust authorities have regarding a WIND/H3G merger as the number of mobile network operators in Italy would remain unchanged if the combination was approved. Iliad has signed an agreement with CK Hutchison Holdings Ltd. (A-/Stable), parent company of Italian mobile operator 3 Italia, and VimpelCom Ltd. (BB+/Stable), parent company of WIND, to acquire selected assets from operators, including frequencies and towers, as a proposed remedy for their merger. These assets would allow Iliad to create a fourth facilities-based mobile operator in Italy. The presence of Mobile Virtual Network Operators (MVNOs) in the Italian market, which together account for more than 7% subscriber market share, is another supporting factor. The creation of a new operator would imply that competition in the Italian market is unlikely to lessen. Fitch believes competition should remain rational as the Italian market has already gone through significant price wars in 2012-2015 and average revenues per user are among the lowest in Western Europe. Furthermore, market leaders Telecom Italia S.p.A. (BBB-/Stable) and Vodafone (BBB+/Stable) are offering competitive tariffs in a lower price range, which reduces discounters' propensity to use price-disruptive tactics. With the growing importance of mobile data, network quality is becoming an important differentiating factor for consumers. Iliad may need time to establish brand recognition and a network of appropriate quality, which may defer the negative impact on competitive intensity. The impact of the Iliad deal on the merged WIND/H3G and its final capital structure will depend on the total disposal proceeds received from Iliad, the nature of the roaming agreement with Iliad and any other regulatory remedies the anti-trust authorities may impose. We do not believe these developments will affect WIND's ratings. On a standalone basis, WIND's rating corresponds to 'B'; this is uplifted by one notch for potential parental support from Vimpelcom Ltd. We expect to remove this rating uplift once the deal is closed as the merged entity will not have the undiluted support of a single significant majority shareholder. With the anticipated operating profile improvement once the proposed merger is completed, the leverage profile of the merged entity will be commensurate with a standalone rating of 'B+'. Funds from operations adjusted net leverage sustainably below 4.75x could support a 'BB-' rating. The merger should not have any impact on VimpelCom Ltd.'s ratings as WIND is ring-fenced. WIND's debt is non-recourse to VimpelCom and WIND's default on its obligations will not trigger a cross-default on VimpelCom's debt. In our view, VimpelCom cannot reasonably expect any cash flows from this subsidiary in the short to medium term as WIND will remain focused on deleveraging. Contact: Slava Bunkov Director +7 495 956 9931 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow 115054 Nikolai Lukashevich, CFA Senior Director +7 495 956 9968 Jonathan Levy, CFA Associate Director +44 20 3530 1701 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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