MONTERREY, Mexico & NEW YORK, Jun 29, 2015 (BUSINESS WIRE) — Fitch Ratings has assigned the following ratings to Operadora de Sites Mexicanos, S.A. de C.V. (Opsimex):
— Long Term Local Currency IDR at ‘BBB-‘;
— Long Term Foreign Currency IDR at ‘BBB-‘;
— National Scale Long Term Rating at ‘AA(mex)';
The Rating Outlook is Stable.
The ratings are supported by Opsimex’ significant operational scale within Mexico, provided by its large tower portfolio which provides critical passive infrastructure to America Movil S.A.B. de C.V. (AMX; rated ‘A’ by Fitch) and eventually to other mobile operators. The company operates in a low competitive environment and has low technology risk. The ratings also incorporate predictable revenues and cash flow generation; along with strong and sustainable operating performance, supported by extensive coverage, geographic diversification in Mexico, scale and favorable demand.
Fitch incorporates an implicit support of the controlling shareholder and the strategic linkage of Opsimex to AMX operations, both controlled by the same shareholder, into Opsimex ratings. The ratings also reflect Fitch expectations of solid cash flow generation that will drive the credit ratios lower. The ratings also consider that leverage measured as total debt-to-EBITDA should trend to 5.0x in the medium term from over 10x as of March 31, 2015. Failure to achieve this would pressure the ratings and could result in negative rating actions. The company has a commitment to avoid paying dividends for the next three years.
KEY RATING DRIVERS
Strategic Linkage: Fitch sees a strong strategic linkage between AMX and Opsimex. Both share the same controlling shareholder and Opsimex’ passive infrastructure is critical to AMX mobile operations in Mexico. Fitch considers the company’s standalone financial profile as weak for the rating category. The ratio of one tenant per tower offers growth potential in the medium- to long-term, which could accelerate by the time Opsimex reaches its targeted capital structure.
Solid Position: Opsimex operates the largest wireless mobile communication tower portfolio in Mexico with the most complete coverage in the country composed of approximately 11,414 tower sites. Low exposure to economic cycles, long-term leases with high renewal rates, low customer churn in the industry and its position in the value chain as a critical infrastructure provider for mobile operators all result in predictable revenues and stable operating margins.
Land Lease Risk: As of May 2015, Opsimex leases all properties where its site infrastructure is located and it has no significant concentration in a single landowner. The company’s average land agreements are 8.5 years; some have an initial period of five years, with terms automatically renewed for five-year periods. Tower term agreements mirror land agreements.
Operating Results Improvement: Going forward the company’s operating margins and cash flow generation should improve as a result of an increase in the number of tenants per tower, without a considerable increase in costs and expenses. Also the company plans to build new towers for AMX, in conjunction with increased demand for 4G data services in the next few years should provide room for further revenue growth. All of Opsimex’s towers have available capacity for new tenants which should underpin margin improvements. Extensive tower coverage across the country provides other mobile operators with an opportunity to rapidly grow their network coverage.
Low competitive environment: Opsimex operates in an industry with minimal competition, where the growth in demand comes mainly from mobile operators. Wireless operators strategies to bring more value to their subscriber’s data plans have made the demand for data capacity grow rapidly. The growth in 4G LTE devices has also resulted in substantially greater investment in wireless network spending and spectrum by operators in order to support greater density and higher bandwidths needed for 4G networks.
High Leverage to trend down: Pro forma leverage in 2015-2016 is high for the rating category given the company’s business and financial risk profile. Fitch believes organic EBITDA growth will reduce leverage to approximately 5.0x by 2017. Management’s financial goal to de-lever is supported by a positive cash flow generation and no dividend payment during the next 3 years.
Low capital intensity: The company has high operating leases related to the land and low modular capital investments; flexibility in tower allocation allow Opsimex to manage its cash flow generation. An unexpected change in economic conditions or in the regulatory environment that negatively affects Opsimex margins or expected revenue could result in a change or deferral of growth plans.
KEY ASSUMPTIONS
Fitch’s key assumptions within the rating case for Opsimex include the following:
– MXN21.5 billion of debt issuance;
– Committed credit line of MXN500 million;
– A cash outflow of MXN21 billion to parent;
– Revenue growth driven by an increase in towers and tenants per tower;
– Capex of around MXN1.4 billion to build new towers.
RATING SENSITIVITIES
Factors that could result in a negative rating action include failure to approach to a Debt/EBITDA ratio of 5.0x in the next three to four years. Other factors include operating performance that falls short of Fitch’s expectations, revenue and margin erosion due to economic and competitive environment, unfavorable change in regulation and debt financed acquisitions that increase, or maintains leverage levels above 5.0x on a sustained basis.
Fitch does not foresee a positive rating action in the short- to medium-term given Opsimex’ high leverage and the incorporation into the rating that leverage will approximate to 5.0x in the next few years.
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