NEW YORK-Moody’s Investors Service Inc. lowered its speculative grade ratings Sept. 10 on $1.2 billion in outstanding Millicom International Cellular S.A. debt by one notch, to Caa1 from B3.
“The rating’s downgrade is prompted by [our] concern that MIC’s revenues and operating cash flow are unlikely to grow at a rapid enough pace to improve debt protection levels consistent with its former ratings levels,” said M.G. Subhas, managing director, and Cyrille R. Conseil, senior analyst, for Moody’s New York-based corporate finance group.
Millicom International has interests in 34 cellular operations covering a population of more than 470 million in 21 countries in Africa, Asia, Europe and Latin America.
“In addition, given the volatility and uncertain outlook for the economies and currencies in Asia and Eastern Europe, Moody’s anticipates, at best, flat consolidated performance for MIC,” the analysts said.
“Net reductions in subscribers continue to be a concern for MIC’s Asian operations as future subscriber disconnections are likely to more than offset new additions.”
On the plus side, the rating agency noted that Millicom recently introduced prepaid cellular services throughout 16 of its markets. Prepaid subscribers now comprise more than half of all the carrier’s net new customer additions and 30 percent of its total customer base.
“The expansion of MIC’s prepaid service offering across its markets should mitigate future customer receivables collection risks, particularly beneficial in light of the economic crises experienced across a number of MIC’s operating countries,” Conseil and Subhas said.
More than a year ago, Millicom announced plans to sell its Latin American wireless properties, which cover about 43 million people and account for nearly 50 percent of the carrier’s consolidated revenues and 60 percent of its operating cash flow.
“MIC’s management … appears to have de-emphasized this strategy to some extent. If these operations are eventually sold, MIC’s business-risk profile could significantly increase since the company’s future cash-flow streams would rely very heavily upon its Asian and Eastern European operations,” the Moody’s analysts said.
“In addition, MIC’s management still intends to spin off Sanbao Telecom, its Asian wireless operations, at some point in the future when the financial markets recover to more normal levels.”
