December 4, 2012 / 3:40 PM / 5 years ago

TEXT-Fitch assigns Telecel 'BB' IDR, outlook is stable

Dec 4 - Fitch Ratings has assigned the following initial ratings to
Telefonica Celular del Paraguay S.A. (Telecel):

--Foreign currency Issuer Default Rating (IDR) 'BB';
--USD300 million senior unsecured notes due 2022 'BB'.

The Rating Outlook is Stable.

The proceeds of the issuance will be used to repay a USD150 million bridge loan
raised for the acquisition of Cablevision with the balance serving to finance
capital expenditures and potential spectrum license costs.

Telecel's ratings reflect its strong financial profile, underpinned by low
leverage and solid cash flow generation. The ratings also consider the company's
leading market position in mobile and Pay-TV services in Paraguay; strong brand
recognition; extensive network coverage; diverse service offering; and low
regulatory risk. The ratings are constrained by the risks associated with its
operation in Paraguay, which are somewhat mitigated by the parent company's
(Millicom International Cellular S.A. (MIC)) ability to provide access to hard
currency, if required. Telecel's credit quality is also tempered by an
increasing competitive environment and limited geographic diversification.

The ratings factor in Telecel's relationship with its parent company, which
fully owns it. Telecel benefits from synergies related to MIC's larger scale and
management expertise, but the ratings also consider Telecel's payment of
dividends and management fees to the parent. Positively, MIC presents a solid
consolidated financial profile. For the last 12 months (LTM) ended Sep. 30, 2012
MIC had USD4.7 billion in revenues, USD2 billion in EBITDA, funds flow from
operations (FFO) of USD1.5 billion, on balance sheet indebtedness of USD2.8
billion and cash balances of USD1 billion.

Low Leverage Post Cablevision Acquisition

Fitch expects Telecel's net leverage at low level, below 1.0x, even after the
acquisition of the Pay-TV company Cablevision in October of 2012. Since 2008 the
company has had a positive net cash position or a net debt-to-EBITDA ratio close
to zero, despite substantial dividend pay outs in recent years. During the last
12 months (LTM) ended on Sept. 30, 2012, Telecel reported a total debt-to-EBITDA
ratio of 0.7x and net debt-to-EBITDA ratio of 0.5x. According to Fitch's
calculations, cash did not include the restricted cash of PGY669 billion, which
was used in October for the payment for Cablevision. This company was acquired
without the assumption of debt, while revenues and EBITDA were USD44 million and
USD17 million, respectively, in 2011.

Margins Should Remain Strong

Fitch expects EBITDA margins to trend downwards towards the 45%-50% level in the
medium term due to the consolidation of the lower margin Pay-TV business and due
to the competitive environment. Telecel's EBITDA margin after fees paid to
Millicom has ranged between 55%-60% in the last five years, which compares
favorably with its peers in Latin America. The company's net revenues have
benefited from a growing customer base and increasing value-added services
participation. In the LTM ended Sept. 30, 2012, net revenues of PYG2,698 billion
were 9.9% higher than in 2011. Following the same increasing trend, EBITDA was
PYG1,485 billion in the LTM ended Sept. 30, 2012, with a high EBITDA margin of
55%.

Pre-dividend free cash flow is expected to remain positive and sufficient to
cover debt service, with the remaining portion to be distributed to shareholders
as dividends. In the LTM ended Sept. 30, 2012, cash flow from operations (CFFO)
was PYG1,415 billion, with investments of PYG318 billion and higher dividends of
PYG1,138 billion leading to a slight negative FCF of PYG41 billion. Annual
capital expenditures should increase to approximately PYG450 billion in 2012 and
PYG500 billion-PYG650 billion from 2013 to 2016 due to growth opportunities.

Leading Market Position; Cablevision Acquisition Boosts Profile

Telecel's ratings are supported by its strong market position as the main
operator in the Paraguayan telecom sector. The company has extensive network
coverage in the country and a diverse service offering. Although competition has
increased in recent years and number portability is expected to start on
December 2012, market share in the mobile segment remains robust at 57%.
Telecel's business position was reinforced after the acquisition of Cablevision,
with an 89% market share of Pay-TV and an important fixed broadband operation.
The company's strategy in terms of increasing bundle services offerings
including mobile, broadband and Pay-TV is positive in terms of client loyalty.

Manageable Liquidity

Liquidity is underpinned by Telecel's cash balances, strong operational cash
generation and a manageable debt maturity profile. As of Sept. 30, 2012, total
debt of PYG1,073 billion had a 69% maturity concentration on short-term (PYG739
billion). Once the USD300 million (PYG1,339 billion) bond issuance is concluded
and the bridge loan is refinanced, Telecel will present a long-term debt
profile, with available cash and marketable of PYG381 billion covering, on a pro
forma basis, PYG360 billion of debt maturing until 2016. Although there is an
exposure to foreign currency as the debt is dollar-denominated and there is no
hedge, the low leverage mitigates this risk. Fitch expects Telecel to remain
with strong short-term debt coverage ratios.

Key Rating Drivers:

A negative rating action could be triggered by leveraged acquisitions, a
substantial increase in capital expenditures or deteriorating cash flow
generation that turns out in a material change in the company's capital
structure. A positive rating action is constrained by its operation only in
Paraguay.

Contact:

Primary Analyst
Mauro Storino
Senior Director
+55-21-4503-2625
Fitch Ratings Brasil Ltda., Praca XV de Novembro, 20 - Sala 401 B - Centro - Rio
de Janeiro - RJ - CEP: 20010-010

Secondary Analyst
Sergio Rodriguez, CFA
Senior Director
+52-81-8399-9135

Committee Chairperson
Dan Kastholm
Managing Director
+1-312-368-2070


Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email:
elizabeth.fogerty@fitchratings.com.

Additional information is available at '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.

Additional information is available at '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:
--'Corporate Rating Methodology', Aug. 8, 2012.

Applicable Criteria and Related Research:
Corporate Rating Methodology

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