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January 14, 2008 |
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EMPRESA DE TELECOM: Moody's Puts Ba1 Rating on US$300-Mil. Notes Moody's has assigned a Baa3 local currency issuer rating with a stable outlook to Empresa de Telecomunicaciones de Bogota S.A. E.S.P. Simultaneously, Moody's has assigned a Ba1 rating with a positive outlook to the proposed up to US$300 million in senior notes denominated in Colombian Pesos due 2018 and payable in US dollars. Affected proposed instrument: -- Up to US$300 million in senior notes denominated in Colombian Pesos due 2018: Ba1, positive outlook. The rating on the senior notes is constrained by Colombia's foreign currency country ceiling (Ba1/POS) because principal and interest payments under the proposed notes are payable in U.S. dollars, calculated by converting the amount owed in Colombian pesos using the Average Representative Market Rate. The Average Representative Market Rate is defined as the average rate of the last five business days, ending the third business day prior to the due date. The notes will pay interest on an annual basis beginning in 2009. Principal will be paid at the maturity date, which is in 2018. The ratings assigned are based on Empresa de Telecomunicaciones' dominant market position in Colombia's major city, City of Bogota, and its solid national market presence. In addition, "the ratings are also supported by the company's strong cash flow generation and credit metrics. Pro forma for the proposed notes, adjusted debt leverage should stand at 1.7 times, funds from operations interest coverage ratio should be at 18 times and retained cash flow to adjusted debt should be at 70% at year end 2007", said Moody's analyst Nymia Almeida. Also pro forma for the proposed transaction, at the end of 2008 the company should have no short-term debt and the debt maturity profile will be comfortable as no major payments would be due before 2018. "The ratings also incorporate the fact that the City of Bogota (rated Baa3, local currency rating) is ETB's controlling shareholder and that the company's indebtedness is closely supervised by the federal government", Ms. Almeida added. In addition, when assigning its ratings, Moody's also took into consideration the pending payments related to litigation and legal disputes. The ratings, however, are constrained by Empresa de Telecomunicaciones' modest size, the extremely competitive nature of the telecom industry in Colombia and the company's weaker access to capital as compared to its most important competitors, Telefonica Telecom/Movistar, Telmex Colombia and America Movil's Comcel. Stronger wireline competition, wireless substitution and introduction of IP-based voice services, especially in the last couple of years, are putting pressure on the company's margins and working capital, and will require the company to maintain conservative balance sheet management in terms of financial leverage and foreign exchange exposure if the ratings are to be maintained over the long term. When assigning its ratings, Moody's also took into consideration that the company is a state owned enterprise exposed to the risk of political interference. The net proceed from the proposed notes will be used to prepay existing debt incurred to fund pension liabilities and to provide additional funds to the trust created to fund the company's pension liabilities. With operating origins back in 1884, Empresa de Telecomunicaciones is a wireline telecom regional incumbent service provider that owns and operates one of the largest telecommunications networks in Colombia providing local and long distance telephone services, Internet services to residential subscribes and data services to corporations. The company has an 80% subscriber market share in the City of Bogota where it generates over 95% of revenues and 90% of its broadband subscribers reside. The City of Bogota is the controlling shareholder and owns over 86% of capital stock; approximately 11% of shares are free float that have traded on the Colombian stock exchange since 2003. During the last twelve months ending on Sept. 30, 2007, the company generated approximately US$730 million in revenues. Local telephony was the main income generator, representing 61% of total revenues; long distance represented 19%, Internet 14% and data services 5%. The outlook on the Baa3 local currency issuer rating is stable. The stable outlook is based on Moody's belief that Empresa de Telecomunicaciones will be able to avoid a significant decline in revenues by acquiring as many possible subscribers before competition intensifies, after the expected strengthening of Telefonica Telecom and Telmex Colombia and the continuation of wireless substitution. In addition, increased needs for high- speed Internet and data services should mitigate the downward pressure on usage of local and long distance telecom services. Moody's also believes that the company's principal shareholder, the City of Bogota, will choose to maintain current financial policies, with dividend payouts in line with net income, as established by the company's current by-laws. The positive outlook for the rating on the senior notes reflects the positive outlook for Colombia's Ba1 foreign currency country ceiling. Empresa de Telecomunicaciones de Bogota SA ESP is based in the City of Bogota, Colombia. As of Sept. 30, 2007, last twelve month unconsolidated revenues and adjusted EBITDA margin stood at approximately US$730 million and 38.4%, respectively. |
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