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March 12, 2008 |
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TELEMIG CELLULAR: Moody's Lifts US$120-Mln Notes Rating to Ba3 Moody's Investors Service upgraded the foreign currency rating of the US$120 million in senior unsecured notes units due 2009 issued by Amazonia Celular S.A. and Telemig Celular S.A. to Ba3 from B2. The rating outlook is now positive. This action concludes the review initiated on Aug. 7, 2007, begun at the time the acquisition of the issuers was announced. The rating action follows the approval by industry regulator Anatel of the acquisition of Amazonia by Telemar Norte Leste S.A. (Telemar; Baa2/outlook stable), and reflects Moody's expectation that Amazonia will benefit from the stronger credit profile of its new controlling shareholder. The Ba3 rating assigned to the notes units is based on the credit quality of Amazonia because 1/3 of the debt service of the notes units depends on payments from Amazonia and are not guaranteed by Telemig, which has a stronger credit profile. The rating assumes that both Telemig and Amazonia will continue to exist as individual entities and anticipates a reasonable level of financial and operational support from their respective shareholders. The debt rating is not constrained by Brazil's sovereign ceiling for foreign currency bonds and notes of Baa3. The rating is constrained by Amazonia's exposure to an intense competitive environment in the company's concession area that has gradually eroded its market share. The unfavorable demographics and lack of population density in its extensive concession area also limit the rating. Free cash flow is currently positive (16% of total adjusted debt; total adjusted debt includes derivatives, pension fund obligations, leases and financial obligations with Telemig), but is likely to turn negative in the coming years due to higher capex to deploy 3G services and improve network quality. Amazonia's considerable refinancing risk deriving from the relatively high amount of short term debt maturities, including the maturity of the rated bonds in January 2009, is somewhat mitigated by expected support from the new controlling shareholder, Telemar. As of Dec. 31, 2007, Amazonia had cash of BRL30 million, last twelve month free cash flow of BRL48 million, short term debt of BRL98 million and the January 2009 maturity of the rated notes and related derivatives transactions, currently totaling BRL117 million. Fitch expects that Telemar will be supportive in securing the funds necessary to refinance Amazonia's debt maturities. As part of Telemar, the largest telecommunications company in Brazil by revenues, Fitch expects Amazonia will be able to dilute fixed expenses and better negotiate the cost of equipment and handsets. The positive outlook incorporates likely synergy gains favoring both margins and cash flows of Amazonia over the next few quarters, as the integration process with Telemar materializes. The rating could be upgraded if there is further evidence of explicit support from Telemar to Amazonia. Headquartered in Belem, Brazil, Amazonia Celular SA provides mobile communications services in the states of Maranhao, Para, Amazonas, Amapa and Roraima in the northern region of Brazil. With 1.4 million subscribers and a 20% market share in its concession area as of Dec. 31, 2007, Amazonia reported net revenues of BRL487 million (about US$285 million) in 2007. Headquartered in Belo Horizonte, Brazil, Telemig Celular is the leading provider of mobile communications services in the state of Minas Gerais, Brazil. As of November 2007, Telemig Celular had 3.5 million customers, with a market share of 30% in its concession area. |
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