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Rating Action:

Moody's assigns Caa1/Ba1.ar rating to Telecom Argentina

Global Credit Research - 13 May 2014

Mexico, May 13, 2014 -- Moody's Latin America Calificadora de Riesgo ("Moody's") has assigned a first time Corporate Family Rating of Caa1 on its Global Scale and Ba1.ar on its Argentina National Scale to Telecom Argentina S.A. (Telecom). The outlook is stable.

RATINGS RATIONALE

The Caa1 Global Local Currency and the Ba1.ar Argentina National Scale corporate family ratings mainly reflect Telecom strong credit metrics in comparison to peers in this rating category and sound capital structure with very low debt, being one the three main players in Argentina in both fixed and mobile services, said Moody's VP-Senior Analyst Gabriel Vigueras.

The assigned rating also takes into consideration Telecom's track record of sustainable growth over the last few years, in the back of a challenging economic and political environment in Argentina. The company has maintained Debt/Ebitda ratio of 0.2 time as adjusted by Moody's throughout the FY2010 to FY2013 period, considering a minor debt denominated in Guaranies equivalent to approx (USD 36 mln) with average maturity of 3.8 years and operating leases of about USD 228 mln denominated in ARS. In addition, the ratings reflect Telecom Argentina positive free cash flow generation and its adequate level of liquidity supported by its cash position of ARS 5.2 bln (approx USD 800 mln) as of FY13.

The Caa1/Ba1.ar ratings are mainly constrained by (i) the highly regulated nature of the Telecom industry in Argentina; (ii) the potential for increasing competition; and (iii) the challenging macroeconomic conditions in the country, including low expected growth, high inflation and currency depreciation, which could pressure operating performance and hamper business growth opportunities for participants. The ratings also take into account the company's limitation to add further products to its offer as per guidelines from the regulator (impossibility to enter into Pay TV as has been the trend for most of Telecom incumbents participants in the industry worldwide) and heavy reliance in the mobile business with a limited availability of further spectrum allocation from the government. This is a concern given the delay in spectrum auctions and the cap to 50 MHz per operator per area. Moreover, the only spectrum planned to be auctioned over the last years never took place and even when it was going to be assigned to a government-owned entity called Argentina Satellite Solutions Corporation (ARSAT), the assignment has not been confirmed yet. Further spectrum allocation is crucial in Telecom's mobile business, particularly if smartphones and 4G extension are at the cornerstone of its business strategy in the following years.

Telecom Argentina Caa1 local currency rating reflects its global default and loss expectation, while the Ba1.ar national scale rating is based on the standing of Telecom Argentina's credit quality relative to its domestic peers. Moody's National Scale Ratings (NSRs) are intended to be relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs in Argentina are designated by the ".ar" suffix. Issuers or issues rated Ba1.ar present the average creditworthiness relative to other domestic issuers. NSRs differ from global scale ratings in that they are not globally comparable to the full universe of Moody's rated entities, but only with other rated entities within the same country.

The stable outlook for Telecom reflects Moody's view that the creditworthiness of the company will remain sound over the next quarters, with acceptable liquidity and low leverage.

An upgrade is unlikely in the near term. Longer term, upward pressure could emerge if Argentina government's Caa1 bond rating was upgraded. In addition, an upgrade of the ratings could result from a continued strengthening of Telecom Argentina's top line during 2014, at least close to inflation levels, while maintaining its operating margins at or above 31% as adjusted by Moody's and leverage below 0.2 times. Additionally, a more predictable outlook for economic activity in Argentina would be important for a rating upgrade.

Moody's cautions that a rating downgrade of the sovereign would likely result in negative rating actions for Telecom Argentina in the absence of any significant change in its underlying credit quality. A downgrade could result from a significant increase in debt, particularly if denominated in US dollars. Negative pressure could also arise from an increase debt / EBITDA ratio consistently above 2 times.

Headquartered in Buenos Aires, Telecom Argentina, S.A. is one of the largest private sector companies in Argentina in terms of revenues and number of employees. Telecom Argentina has a non-expiring license to provide fixed-line telecommunications services in the country, and it also offers other telephone-related services such as international long-distance, data transmission, IT solutions outsourcing and Internet services. Further, the company also provides mobile telecommunications , which represent the bulk of the revenues, and international wholesale services. Telecom Argentina generated ARS 27 Billion in revenues and 31.4 % of Moody's adjusted EBITDA margins in 2013. Over tha period, the company generated 4% of its revenues in Paraguay, where it offers mobile services through an LTE network since 2010.

Telecom Argentina share capital is comprised as follow: Nortel Inversora (51% class A, 3.74% class B), Floating(45.23% class B and ADS) being the balance class C shares. In turn, Nortel is owned by Sofora Telecomunicaciones which major shareholders are Telecom Italia (Ba1, neg) 68% and Argentina W (Werthein Group) 32%.

The principal methodology used in this rating was Global Telecommunications Industry published in December 2010. Please see the Credit Policy page on www.moodys.com.ar for a copy of this methodology.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".mx" for Mexico. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in October 2012 entitled "Mapping Moody's National Scale Credit Ratings to Global Scale Credit Ratings".

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.ar.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

The regulatory report related to this rating action is available on www.moodys.com.ar.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com.mx for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com.mx for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com.mx for further information.

Please see www.moodys.com.mx for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

The ratings issued by Moody's de Mexico are opinions regarding the credit quality of securities and/or their issuers and not a recommendation to invest in any such security and/or issuer.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Gabriel Vigueras
Vice President - Senior Analyst
Corporate Finance Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

Marianna Waltz, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

Releasing Office:
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

Moody's assigns Caa1/Ba1.ar rating to Telecom Argentina
No Related Data.
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