OREANDA-NEWS. March 16, 2016. Fitch Ratings has assigned an 'A' rating to America Movil S.A.B. de C.V.'s (AMX) senior unsecured EUR850 million notes due 2024 and EUR650 million notes due 2028. Proceeds from the issuance are expected to be used for general corporate uses.

AMX's ratings reflect its position as the largest wireless service provider in Latin America with well-established multiple service platforms and solid network competitiveness and a high degree of geographical cash flow diversification, all of which support its consistent positive free cash flow (FCF) generation, ample financial flexibility, and solid liquidity. Ratings are tempered by increasing competitive and regulatory pressures in some of its key markets, recent increase in leverage due to acquisitions and shareholder distributions, as well as price pressures in its voice services.

KEY RATING DRIVERS

Medium-Term Leverage Improvement:

The ratings reflect AMX's commitment to achieve its medium-term net leverage target of 1.5x. The company is expected to keep financial discipline with respect to cash flow usage in order to achieve its financial target in the absence of any sizable acquisitions or shareholder return. The company's current leverage ratio, as of Dec. 31, 2015, is high at 2.0x, which leaves limited ratings headroom at the current rating level. Positively, Fitch forecasts this ratio to gradually recover to below 2.0x over the medium term backed by stable positive FCF generation due to lower capex plans in the absence of any sizable shareholder distributions.

Pressures in Mexico:

Regulatory measures from the Mexican telecom sector reform, in which AMX was declared 'preponderant' during 2014, have negatively affected the company's Mexican operation. The unfavorable measures mainly include reductions in interconnection and national long-distance charges, as well as sharing of AMX's network infrastructure. As a result, the company's Mexican operation's revenues declined by 1% in 2015 compared to a year ago, while the EBITDA margin fell to 40.0% from 43.8%. In addition, the competitive landscape has become more intense with the entrance of AT&T, which could further pressure the company's profitability in Mexico over the medium term. Positively, the company's well-diversified operational geographies mitigate this risk to an extent. During the period, nearly 70% of AMX's consolidated revenues were generated outside of Mexico.

Slow Revenue Growth; Pressured Profitability

Fitch forecasts AMX to undergo slow revenue growth over the medium term mainly due to increasing pricing pressures and negative exchange rate movements in some of its key markets. In 2015, the company's service revenues fell by 1% compared to 2014, based on full consolidation of Telekom Austria operations. Positively, the company should be able to mitigate this to an extent with increasing data revenues given its aggressive investment since 2011 in upgrading networks across the region to provide attractive mobile data and bundled fixed product offerings. The revenue contributions from fixed-line services, excluding voice, and wireless data represented 22% and 32% of the consolidated revenues, respectively, during the fourth quarter of 2015 (4Q'15), which are significant improvements from 20% and 21%, respectively, in 2012.

Negatively, the company's EBITDA declined by 5% during the period compared to a year ago, mainly due to the negative reform impact in Mexico. As intense competition across AMX's operational geographies is unlikely to be curbed, ongoing margin erosion could continue over the medium term. AMX's consolidated EBITDA margin deteriorated to 30% during 2015, which compares to 32% in 2014.

Positive FCF Generation:

Fitch forecasts AMX to resume its positive FCF generation over the medium term, underpinned by stable cash flow from operation (CFFO) and falling capex. Following the completion of major network upgrades in the past five years, the company has indicated its intention to reduce capex by 20%-25% in 2016 from the 2015 level of MXN152 billion. In the absence of any sizable increase in dividend payments, Fitch forecasts the FCF-to-sales ratio to be in the low-single-digits over the medium term, which should support gradual deleveraging.

RATING SENSITIVITIES

Future developments that may, individually or collectively, lead to a negative rating action include:

--Increased regulatory and competitive pressures across AMX's operational geographies leading to significant erosion in its market positions and operating margins;
--Aggressive shareholder return policy in terms of both dividends and share buybacks;
--Sizable investments/acquisitions leading to weak cash generation over the medium to long term;
--Net leverage, measured by total adjusted debt including rental expenses to EBITDAR, increasing to above 2.0x on a sustained basis as a result of the aforementioned factors.

Conversely, rating upgrades are not likely in the short to medium term due to the competitive/regulatory operating environment, and increased leverage.

LIQUIDITY

AMX has strong liquidity backed by robust internal cash flow generation and good access to domestic/international capital markets when in need of external financing, which supports its financial flexibility. The company held a readily available cash balance of MXN102 billion at end-2015, which mostly covered the short-term debt of MXN110 billion.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for AMX include:

--Modest revenue growth in the low-single-digits over the medium term;
--Margin deterioration to continue, with the EBITDA margin falling to below 30%, over the medium term due to the competitive and regulatory pressures;
--Positive FCF generation over the medium term due to falling capex in the absence of any material increase in shareholder distributions or acquisitions;
--Net leverage to gradually recover and remain below 2x in 2015 and 2016.

RATING SENSITIVITIES
Future developments that may, individually or collectively, lead to a negative rating action include:

--Increased regulatory and competitive pressures across AMX's operational geographies leading to significant erosion in its market positions and operating margins;
--Aggressive shareholder return policy in terms of both dividends and share buybacks;
--Sizable investments/acquisitions leading to weak cash generation over the medium to long term;
--Net leverage, measured by total adjusted debt including rental expenses to EBITDAR, remaining above 2.0x on a sustained basis as a result of the aforementioned factors.

Conversely, rating upgrades are not likely in the short to medium term due to the competitive/regulatory operating environment, and increased leverage.