Spin-offs, disposals to offset the 2022 investment pressure from telecommunications operators LatAm



Telecom operators in Latin America will step up divestments, deconsolidations and spin-offs of network assets next year, which should partially offset the increased pressure on investments from fiber and 5G.

Fitch Ratings said telecommunications investments will be impacted in the medium term by larger investments in fiber and 5G networks, also given the delay in auctions of 5G spectrum for some Latin American markets until 2022 and 2023. .

“The capital intensity of the telecommunications sector in Latin America has held up recently, with a median of around 19% to 20% of revenues. Fitch expects this ratio to decline to around 17% in 2022, mainly due to the conclusion or normalization of investment plans, ”the agency wrote in its 2022 sector report.

Operators face increased competition putting pressure on ARPU, as well as the resumption of deferred investments, as well as investments in 5G and fiber. All of this tends to have a negative impact on free cash flow.

According to Fitch’s analysis, fiber penetration per average subscriber in Latin America is low, around 6%, which opens up opportunities for growth. Brazil and Chile have relatively high penetration of 10% to 11%, while other countries, such as Peru, have minimal fiber coverage.

At the same time, Fitch expects companies to continue building assets in 2022, such as antennas or fiber infrastructure, amid the high business value of assets, strong demand for data, and investments required for 5G over the next few years.

Examples of these moves are Telefónica’s fiber JVs and the América Móvil towers spin-off, in addition to Brazil’s neutral networks and Liberty Latin America’s submarine cable spin-off plans.

READ ALSO : Spotlight: how and where are the largest telecommunications operators in Latin America investing?

“The impact of 5G investments on operators’ credit profiles will depend on their current financial strength, the flexibility of investment plans and their ability to finance investments through sales of non-core assets or reductions. of dividends, ”the report said.

In 2021, Fitch upgraded three telecom companies, mostly due to deleveraging, while two were downgraded, one due to sovereign downgrade.

Fitch revised América Móvil’s Outlook “A-” to positive in May, given the deleveraging expectations after the asset sale, raised the positive “BBB” outlook of Operadora de Sites Mexicanos due to the improvement in its financial profile and placed the “CCC under review for the positive rating of the Digicel group in October following the announcement of the sale of its assets in the Pacific.

Of the 22 internationally rated entities in the agency’s portfolio, 18 have a stable outlook, three a positive outlook / watch and one (Telefónica del Perú) a negative outlook. Telefónica del Perú’s low profitability is deteriorating its credit profile, Fitch said.

As part of the judicial reorganization, Fitch did not attribute a prospect to Brazilian Oi, rated ‘CCC +’.

Fitch’s overall outlook for Latin American telecommunications remains stable due to the growing importance of digital connectivity with work-at-home and hybrid models. The modest declines in income in 2020 have largely reversed in 2021, and Fitch expects the momentum to continue as growth in the region continues.

Regarding the asset mix, Fitch considers the joint venture between Claro Chile d’América Móvil and VTR of Liberty Latin America as “largely positive” for VTR’s credit profile, without affecting that of América Móvil.

“This JV will allow the combined entity to strengthen its leadership position in FBB [fiber broadband] with a 42% market share, also allow VTR to diversify its operations in the mobile sector and benefit from $ 180 million in synergies.

Liberty Latin America remains the main regional consolidator.

The Chilean agreement follows the acquisition of Telefónica’s operations in Costa Rica in 2021 and the consolidation of Cabletica.

READ ALSO: ICT Outlook 2022: the new reality

MOODY’S

Moody’s also considers that some active positive combinations, including those of Claro and VTR.

Following this announcement, Moody’s has placed under review the upgrading of the ‘B1’ rating of the senior unsecured bonds of VTR Finance and of the ‘Ba3’ rating of the senior covered bonds of VTR Comunicaciones.

Moody’s also said its review will depend on the resulting business and financial profile of the joint venture at closing.

This includes “the capital structure of the combined entity, the size of the company, its competitive position and the expected synergies following the approval of the Chilean telecommunications regulator; and the corporate governance and details of the agreement of shareholders between LLA and AMX “.

He added that “the ratings could be improved if the business profile resulting from the joint venture is approved as proposed.”

Likewise, the agency also considers that the agreement has little impact on América Móvil’s credit, among other things because Claro Chile currently represents less than 2% of América Móvil’s consolidated turnover.

“AMX will keep the towers owned by Claro Chile, as it plans to divest them, as well as most of its approximately 36,000 towers in Latin America,” Moody’s said.

S&P

S&P Global Ratings is also optimistic about the outlook for some asset deals.

The acquisition of NB Telecom in Brazil and Nedetel in Ecuador by Ufinet de Zacapa will allow the company to expand and strengthen its regional presence and support its operations in Colombia and Guatemala.

“The continued demand for fiber in Latin America, together with the emergence of large customers and the good performance of the commercial division, should support the positive trend expected for 2021 and 2022,” S&P wrote in a recent report on the company. mother of Ufinet, Zacapa, based in Luxembourg. .

The positive outlook for Zacapa reflects S & P’s view that the expansion of infrastructure in Latin America “combined with increased demand for bandwidth from businesses and telecommunications operators and its strong dark fiber order backlog will support the group’s revenue growth over the next few years ”.

Regarding Axtel in Mexico, S&P recently confirmed the company’s “BB” rating, outlook stable, after Axtel has not yet reached a definitive agreement to divest its infrastructure and / or its service business segments. .

After entering into a competitive process during which it received several offers for the remaining parts of its subsidiaries Axtel and Alestra, the Mexican group Grupo Alfa decided to sell these operations separately, by business units. But the process is barely advanced.

“The stable outlook reflects our view that Axtel will continue to focus on finding alternatives for semiconductor sourcing in order to attract new customers and strengthen its EBITDA,” said S&P.

According to S&P, Axtel suffered from the negative effects of supply chain disruptions in semiconductors, failing to sign new customers in the second half of 2021.

Based on business Information, this loss of customers represented approximately 50 million pesos ($ 2.36 million) of losses in the third quarter of 2021.

“Our baseline scenario considers that this effect will continue into the first half of 2022. Additionally, we assume that voice service revenues lost during the pandemic will not return as we believe that businesses and government entities no longer need the same volume of voice services taking into account the implementation of other communication channels via broadband.

As such, S&P now expects Axtel to deleverage slower compared to previous projections, although the debt-to-Ebitda ratio remains in line with the financial risk assessment.


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