Fitch Ratings has downgraded all of
In conjunction with these moves, Fitch has placed all of these ratings on Rating Watch Negative (RWN).
The downgrade of TdP's ratings reflects the near-term materialization of the company's tax liability, which will result in a material deterioration in the company's leverage profile, although the timing and extent of additional debt financing needed to pay the tax payments remains uncertain. In addition, the company has continued to operate in an intense competitive environment amid lingering cost inflation pressures and an uncertain economic backdrop in
Key Rating Drivers
Materialization of Tax Liability: As of
At present, the exact amount, timing, and structure of the payments is not yet known, but Fitch expects, according to what the recent shareholders meeting approved, the company will seek additional financing and potential capital contributions to service these payments, which will affect the company's financial profile. Peruvian companies facing tax liabilities have the option to extend a portion of the final settlement payment up to six years by following standard procedures with the
Weak Profitability, Negative FCF Trends: Fitch expects FCF to gradually improve over the rating horizon, but will remain negative and continue to weigh on the company's financial profile. Despite experiencing a partial recovery in mobile revenues and margins off of pandemic lows, EBITDA margins have continued to be relatively weak versus peers in the region.
Fitch expects an acceleration of fiber rollout and low single digit ARPU growth to offset declining demand for fixed voice, generating revenue growth in the low single digits for the fixed business over the rating horizon. A more stable mobile competitive environment, growing demand for broadband, and cost containment efforts should result in modest EBITDA margin expansion over the rating horizon, albeit below historic levels and below that of investment-grade peers.
Leverage Expected to Worsen: Some modest improvements in YTD EBITDA in 2022 resulted in net debt/EBITDA improving to 2.3x as of
Strong Market Shares and Diversification: TdP's business profile, particularly in terms of market share and diversification, remains solid. TdP is well-diversified between fixed and mobile service offerings despite market share losses in recent years due to intense competition, most notably on the mobile side as Entel and Bitel (
Linkages with
Derivation Summary
In comparison with other regional peers in the 'BBB' rating category, TdP's business position is toward the lower end of the category because of its still-leading, but weakening market positions in the highly competitive Peruvian telecom industry. The company's financial profile deteriorated since 2016 due to intense competition. This caused a decline in operating margins and cash flow generation, which are more in line with 'BB' category issuers.
TdP's business position is roughly in line with sister company
TdP is rated one notch below competitor Entel (BBB/Stable), as Entel has been able to capitalize on its improved scale in
.
Key Assumptions
Fitch's Key Assumptions Within the Rating Case for the Issuer Include
Mobile revenues grow to PEN3.9 billion from PEN3.5 billion over the rating horizon;
Low-single-digit growth in mobile subscribers and growth in ARPUs;
Fixed revenues remaining relatively flat, near PEN3.6 billion over the rating horizon;
Continued double-digit declines in fixed-line voice subscribers, partially offset by broadband and pay-TV subscribers, growing in the low single digits, with fixed ARPUs growing in the low-single-digit percentage range;
EBITDA margins gradually improving to around 14.5%, with an improved pricing environment offset by mix-shift and cost inflation;
Capital intensity in the low-double-digits percentage range;
Material tax payments pressure FCF.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Stabilization of the ratings is dependent on attaining greater clarity on manageability of tax liability payments and the company achieving stability in market position and margin expansion materially above forecasts.
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Continued deterioration of margins and competitive position regardless of credit metrics;
Total debt/EBITDA sustained above 4.0x or net debt/EBITDA above 3.5x;
Unfavorable financing structure of payments.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Uncertain Liquidity: As of
Issuer Profile
Summary of Financial Adjustments
Standard lease adjustments
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
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This 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. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
(C) 2023 Electronic News Publishing, source