Fitch Ratings has upgraded
Fitch has also upgraded Tigo UNE's National Short-Term Rating to 'F1+(col)' from 'F2(col)' and its CP rating under the 'Programa de Emision y Colocacion de Bonos Ordinarios y Papeles Comerciales' to 'F1+(col)' from 'F2(col)'. The Rating Outlook is Stable following the upgrade.
The upgrades and Stable Outlook reflect Tigo UNE's improved liquidity due to equity support from its two shareholders, Millicom and Empresas Publicas de
Key Rating Drivers
Improved Liquidity: Tigo UNE's liquidity was reinforced by capital injections from its shareholders in 2023. This support also allowed it to enter into a new bank loan with Bancolombia. In
Free Cash Flow Trends: Fitch projects Tigo UNE's FCF to remain negative in 2024 but gradually improve over the rating horizon as the company implements cost cutting initiatives to improve EBITDA margins. Spectrum costs should be less of a headwind as the company benefits from its network sharing agreement with Movistar. Tigo UNE's FCF was highly pressured in 2023 due to high levels of spectrum-related capex, the impact of higher interest expense, and ongoing competitive challenges in the industry. This led to a liquidity crunch in 2H23 that ultimately resulted in the company's shareholders providing a timely equity injection.
Defending Market Position: Tigo UNE demonstrates relative strength in the fixed home segment, a strong spectrum position aligned with its coverage strategy, and a mobile network buildout with strong post-paid data user growth. Fitch believes these factors will help the company weather WOM Colombia's entry into the country's mobile market and aggressive promotional activity in the home segment from competitor Movistar.
Broad Service Offerings: The company's service diversification compares well with other operators in the region. Tigo UNE is well-diversified across home, mobile, and B2B, with respective service revenue shares of approximately 35%, 41% and 20% during 2023. Tigo UNE operates entirely within the Colombian telecommunications market.
Parent Subsidiary Linkages: Fitch believes Tigo UNE has a weaker standalone credit profile compared to Millicom. Based on Fitch's Linkage Factor Assessment, legal, strategic, and operational incentives are assessed as low, and accordingly no uplift is considered in Tigo UNE's rating. The company's ratings incorporate weak linkages with both Empresas Publicas de Medellin E.S.P. (EPM; BB+/Negative Watch) and
ESG - Governance: The ratings remained constrained by Tigo UNE's shareholder structure, which results in a one-notch differential from the Standalone Credit Profile. While Millicom and EPM were able to come to an agreement on an equity injection, the shareholder structure provides less financial flexibility than its peers due to a more onerous process required for financing needs.
Derivation Summary
Tigo UNE's business profile is comparable to other diversified telecom operators in
Tigo UNE's overall business is similar to that of direct competitor Colombia Telecomunicaciones (BBB-/Negative), with similar revenue shares of the overall Colombian market, although Tigo UNE has a longer history of maintaining lower leverage. Tigo UNE is also relatively stronger in the fixed broadband and pay-TV business, which could imply more subscription like cash flows, as the Colombian mobile market is still mostly prepaid.
With greater scale and diversification, Tigo UNE's business profile is somewhat stronger than 'BB' category domestic telecom peers, such as
Another non-investment-grade peer,
Tigo UNE is rated below
Key Assumptions
Broadband and pay-TV revenue generating units (RGUs) contract slightly in 2024 due to heightened competition; pay-TV RGUs continue to be flat to down over the rating horizon while broadband RGUs will be approximately flat;
Blended home ARPUs down in 2024, due to competitive pressures in broadband and pay-TV and secular declines in fixed voice; flat-to-slightly up thereafter;
B2B revenue growth in the mid-single digits on growing demand for digital services;
Total mobile subscriptions grow in the low single digits as conversion of customers from prepaid to post-paid continues;
Blended mobile ARPUs growing modestly in the low to mid-single-digit range due to mix-shift effects from strong post-paid growth;
EBITDA margins improving to over 28% by FY2025 from trough levels of 24.1% in 2022, as cost control measures more than offset high pressures from competition;
Capital intensity around 19-20% over the rating horizon, down from ~29% in 2023, due in part to cost control efforts on non-spectrum-related capex and lower spectrum payment needs;
Gross debt/EBITDA of around 1.6x-1.9x and net debt to EBITDA of around 1.5x-1.8x over the rating horizon;
No material dividends over the rating horizon as the company focuses on investments and debt repayment.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
A sale of EPM's stake to Millicom could lead to an upgrade;
Sustained (CFO-capex)/debt above 2.5%.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Continued shareholder disputes, or inability to access financing due to governance issues could lead to a multiple notch downgrade;
Deterioration in business position due to competitive pressures;
Net leverage above 3.5x.
Liquidity and Debt Structure
Improved Liquidity: Tigo UNE's liquidity has improved since the company received the joint equity contributions from company's shareholders, Millicom and EPM in 4Q23. As of
In
Issuer Profile
Tigo UNE is an integrated telecommunications services provider in
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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