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I AGREE
11 Jul 2016
Madrid, July 11, 2016 -- Moody's Investors Service has today assigned a first-time issuer
rating of Baa2 to Ceská telekomunikacní infrastruktura a.s.
(CETIN), the leading infrastructure operator in the Czech Republic.
The outlook on the rating is stable.
"The Baa2 rating balances CETIN's modest size and its high initial leverage,
against more positive factors such as its unique business model as a telecom
infrastructure operator, its solid and entrenched market position
underpinned by long term commercial agreements with two of the most important
service providers, as well as its strong cash flow generation capacity,
which should allow the company to reduce debt quickly," says Carlos
Winzer, a Moody's Senior Vice President and lead analyst for CETIN.
RATINGS RATIONALE
The Baa2 issuer rating reflects the company's differentiated business
model as a telecom infrastructure-only operator, its strong
market position as the only national telecom infrastructure provider,
and its resilient business model underpinned by solid commercial agreements
with O2 Czech Republic a.s. (O2, unrated), driving
80% of EBITDA in the next 7 years, and T-Mobile Czech
Republic (T-Mobile, unrated). There are no comparable
alternative nationwide infrastructure based competitors in the Czech Republic,
which contributes to the resilience of the business model.
The rating also takes into consideration: (1) CETIN's de-leveraging
objective supported by management's conservative financial strategy
in which the dividend pay-out is subject to operating cash flow
strength, capex funding and debt repayment as priority objectives;
(2) CETIN's modest size but strong market position as a national
infrastructure provider; (3) the growth prospects of the telecom
market given the strength of the economy in the Czech Republic supported
by resilient GDP growth when compared with other European markets;
(4) the expected supportive regulatory environment; (5) the stable
business risk as CETIN benefits from operating leverage that contributes
to high EBITDA margins in the domestic business (more than 64%
EBITDA margin excluding the international transit business) and stable
capex overall; (6) its strong cash flow generation before dividends;
and (7) its adequate liquidity profile over the next 12-24 months.
A key consideration is customer concentration. O2 is the key customer
for CETIN driving approximately 80% of the company's EBITDA
and more than 95% of the committed revenues over the period 2016-2022.
According to Moody's, O2 appears to be a sound business partner
with stable revenues, low leverage (target reported net leverage
of up to 1.5x) and strong cash flow metrics. Although Moody's
notes a high customer concentration, it has also factored in the
multi-year commitment between O2 and CETIN which provides greater
predictability of the revenue stream until 2022, as well as the
sustainable long-term demand for the network independently from
O2.
Moody's has also assessed the telecoms market in Czech Republic.
It is currently stabilising after a number of years of decline and it
will further benefit from: (1) flat mobile tariffs, and (2)
mobile data revenue growth driven by 4G. Conversely, the
outlook is less optimistic on fixed and business data services.
On one hand, Moody's expects fixed voice revenues to continue on
its declining path as customers continue to leave the service.
On the other, fixed broadband revenues are expected to remain stable
in spite of a strong improvement in access numbers. As a consequence
of continued pricing pressures, business data service revenues are
also expected to decline.
From a competitive dynamic perspective, CETIN currently covers more
than 50% of the Czech Republic market. There is no comparable
nationwide infrastructure based provider, as the closest competitors,
UPC Holding B.V. (UPC, Ba3 stable) and Vodafone Group
Plc (Vodafone, Baa1 stable), are smaller, have lower
coverage or have weaker market position.
Moody's has assumed that CETIN's consolidated revenues will increase
by 3% in 2016 and approximately 2% in 2017, mainly
as a result of higher volumes in the transit traffic and in the mobile
business.
CETIN, with its strong focus on revenue, profitability and
capex optimization, is a highly cash generative business.
Moody's expects the company's cash flow generation will continue
to improve due to a moderate improving trend in revenues, a relatively
fixed and efficient cost base and stable capex. CETIN will benefit
from the degree of operating leverage embedded in this business,
which will drive the high domestic margin. As the company gains
traffic and increases scale, incremental increases in domestic revenues
will drop to the EBITDA line, having a positive impact on margins.
Moody's expects CETIN to continue to pursue a deleveraging strategy to
comply with conservative financial objectives. This includes a
deleveraging path from Moody's adjusted gross debt to EBITDA of
3.7x (equivalent to reported net debt to EBITDA of 3.5x)
as of December 2015, to around 2.9x as of December 2018 and
trending towards 2.5x thereafter.
The liquidity risk profile of CETIN is adequate, supported by the
company's strong operating cash flow generation. This is
taking into consideration that although there are no debt maturities until
July 2018, management will be gradually repaying debt based on the
free cash flow generation after capex and dividend payments. Although
CETIN does not have bank back-up facilities in place for the time
being, management could plan for having them in the future.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook factors in that CETIN's credit metrics will continue
to be well positioned for the rating category based on Moody's expectation
that the company will de-lever and therefore the adjusted debt/EBITDA
ratio will improve over the next two years, while the group will
continue to generate positive free cash flow. This includes a deleveraging
path from Moody's adjusted gross debt to EBITDA of 3.7x (equivalent
to reported net debt to EBITDA of 3.5x) as of December 2015,
to around 2.9x as of December 2018 and trending towards 2.5x
thereafter.
The stable outlook also assumes that CETIN will meet or exceed its deleveraging
targets and management will distribute up to 100% of its annual
Net Income through dividends over the projected period, only if
the deleveraging plan is achieved. There will be no cash dividend
distribution in 2016 and approximately one third of planned 2016 net income
in 2017. Moody's notes that PPF, CETIN's shareholder,
has committed to adjust the company's dividend to mitigate any future
deviation in operating performance and hence protect financial ratios
within the current rating.
WHAT COULD CHANGE THE RATING UP
Upward pressure on the rating could develop if the company delivers on
its business plan, such that its adjusted debt/EBITDA ratio drops
below 2.5x on a sustained basis. This decrease in leverage
would likely be reliant on the company maintaining a conservative approach
to acquisitions and shareholder remuneration policies, such that
its deleveraging profile is not compromised.
WHAT COULD CHANGE THE RATING DOWN
Downward pressure could be exerted on the rating if CETIN's operating
performance weakens as a result of pricing pressures or market share losses
reducing cash flow generation, or if the company increases debt
as a result of acquisitions or shareholder distributions such that its
adjusted debt/EBITDA remains above 3.5x by 2017. A weakening
in the company's liquidity profile could also exert downward pressure
on the rating.
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Global Communications
Infrastructure Rating Methodology published in June 2011. Please
see the Ratings Methodologies page on www.moodys.com for
a copy of this methodology.
Ceská telekomunikacní infrastruktura a.s.,
headquartered in Prague (Czech Republic), is the only national Czech
telecommunications infrastructure provider. The company was incorporated
in June 2015 after the spin-off from O2 Czech Republic a.s..
In 2015, CETIN generated revenues of CZK19.13 billion and
EBITDA of CZK7.94 billion. CETIN currently operates and
manages fixed and mobile infrastructure in the domestic market and transit
infrastructure abroad with international points of presence in Germany,
Austria, Slovakia and UK. CETIN's main customer is
O2 Czech Republic a.s. (unrated) accounting for almost 80%
of CETIN's EBITDA.
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
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rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit 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.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Carlos Winzer
Senior Vice President
Corporate Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Ivan Palacios
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's assigns first-time issuer rating of Baa2 to CETIN; stable outlook
No Related Data.
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