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Rating Action:

Moody's downgrades ratings of America Movil to A3; outlook stable

23 Feb 2017

New York, February 23, 2017 -- Moody's Investors Service ("Moody's") today downgraded the global scale senior unsecured ratings of America Movil, S.A.B. de C.V. ("America Movil") and the backed senior unsecured global scale ratings of its subsidiary, Telefonos de Mexico, S.A.B. de C.V. ("Telmex") to A3 from A2. The outlook on the ratings is stable. This action concludes the review for downgrade initiated on December 15, 2016.

RATINGS RATIONALE

The downgrade of America Movil's ratings to A3 from A2 reflects Moody's view that, although the competitive and regulatory environment is likely to become less challenging in Latin America under current telecom service prices, the company's credit profile remains commensurate with an A3 rating amidst limited industry-growth and slow economic recovery across the region. America Movil has recently demonstrated a strong commitment to debt reduction; however, a combination of tighter profitability and exposure to hard-currency debt partially undermined its efforts to deleverage. While in 2016 the company reduced debt by USD6.1 billion (a decline of 15% in US dollar equivalent), its reported debt rose by 4% in local currency terms mainly as a result of the Mexican peso's 17% devaluation against the US dollar.

While Moody's expects America Movil to remain committed to reduce its debt burden through 2018, a limited recovery in EBITDA margin and exposure to hard currency debt will keep Moody's adjusted leverage over 2.0 times on a sustained basis, which is incompatible to an A2 rating.

Moody's expects America Movil to prudently manage capex and shareholder distributions in order to reach its publically stated target to remain within a net debt to EBITDA leverage of 1.5 times within two years. In line with its focus on continued debt reduction, we expect the company to generate steady positive free cash flow, which will aid in the deleveraging process.

America Movil's A3 ratings are supported by its large scale among telecom operators globally and its strong presence in Latin America, complemented by a majority market share for wireless and fixed line subscribers in Mexico. The ratings reflect stable positive free cash flow generation and a multi-regional revenue base coupled with extensive and modern infrastructure to support competitive positions. In addition, the ratings benefit from America Movil's relatively conservative financial policies.

The stable outlook on America Movil's ratings incorporates a sustained deleveraging trend to under 2.5 times adjusted debt to EBITDA by year-end 2018, stable revenues, ongoing positive free cash flow and no further decline in EBITDA margins.

America Movil's ratings could be downgraded if Moody's believes that adjusted debt to EBITDA will remain above 2.5 times beyond 2018, adjusted EBITDA margins deteriorate toward 25% with no prospects of turnaround or if the company generates negative free cash flow or retained cash flow to debt under 20% on an ongoing basis. If America Movil makes large debt-funded acquisitions or continues to provide significant returns of capital to shareholders while leverage rises, the ratings could also be downgraded. Material market share reductions in key markets, negative regulatory shifts affecting profitability or a deterioration in the company's liquidity would also put pressure on the ratings.

America Movil's ratings could be upgraded if adjusted debt to EBITDA falls below 2.0 times, adjusted EBITDA margins recover toward 35% and retained cash flow to debt surpasses 35%, all on a sustained basis.

The downgrade of Telmex's backed ratings to A3 from A2 reflects the downward action on America Movil's ratings as well as deterioration in Telmex's operational performance, characterized by poor revenue growth and tighter margins amid intense competition, regulatory limitations and structural shifts in the telecom industry. Although Telmex's credit profile is weaker than its parent, America Movil's implicit support, evidenced by its guarantee of almost 50% of Telmex's outstanding debt, is incorporated in the rating.

Despite operating challenges and a weaker credit profile in recent years, Telmex maintains strong market shares amid increasing competitive pressures, and its ratings are supported by advantages arising from its leading market position, extensive fixed line network and opportunities arising from growing data demand. The company will benefit from a lighter financial debt profile and lower capital intensity through 2018. While regulatory restraints also remain, there is more limited risk associated with an abrupt regulatory shift under the recently established framework.

The stable outlook on Telmex's ratings assumes flat revenue growth, limited EBITDA deterioration such that adjusted margins remain close to 25%, positive free cash flow, a low financial debt burden and solid market share positioning.

Since Telmex's current ratings consider our expectations of support by parent company America Movil, a ratings downgrade could be triggered by a downgrade of America Movil's ratings or circumstances affecting parent support. America Movil could stop supporting Telmex due to lack of willingness, if for example, competitive pressures, higher technology risk or further unfavorable regulatory changes deteriorate Telmex operations to the extent that the company is no longer a material asset for America Movil. Support can also be affected by a deterioration in America Movil's financial strength that could no longer allow it to provide financial support or to Telmex.

Telmex's ratings could be upgraded if America Movil's ratings are upgraded. If the company is able to reverse poor revenue growth trends, expand EBITDA margins significantly and reduce leverage on a sustained basis while maintaining positive free cash flow, positive rating pressure could arise. A ratings upgrade would also take into consideration America Movil's financial strength and long-term commitment to the stability of Telmexs ongoing operations.

America Movil, S.A.B. de C.V., headquartered in Mexico City, Mexico, is Latin America's leading telecom operator with over 363 million accesses, of which 281 million were mobile subscribers as of December 2016. The company offers wireless, fixed and pay TV services to 18 countries in the Americas and various European nations through a controlling stake in the Telekom Austria group. In the last twelve months ended December 2016, America Movil reported revenues of close to USD 52.3 billion.

Telefonos de Mexico, S.A.B. de C.V. (Telmex), headquartered in Mexico City, is a private company that provides voice and broadband access services under a national concession and network coverage in Mexico, with over 60% subscriber market share. During the last twelve months ended December 2016, the company's revenues of approximately USD 5.6 billion. Telmex is 98.7% owned by America Movil, S.A.B. de C.V. (A2 RUR), the largest telecom company in Latin America.

The principal methodology used in these ratings was Telecommunications Service Providers published in January 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The following summarizes today's rating actions:

Downgrades:

..Issuer: America Movil, B.V.

....Senior Unsecured Regular Bond/Debenture, Downgraded to A3 from A2

..Issuer: America Movil, S.A.B. de C.V.

....Junior Subordinated Regular Bond/Debenture, Downgraded to Baa2 from Baa1

....Senior Unsecured Medium-Term Note Program, Downgraded to (P)A3 from (P)A2

....Senior Unsecured Regular Bond/Debenture, Downgraded to A3 from A2

....Senior Unsecured Shelf, Downgraded to (P)A3 from (P)A2

..Issuer: Telefonos de Mexico, S.A.B. de C.V.

....Backed Senior Unsecured Regular Bond/Debenture, Downgraded to A3 from A2

Outlook Actions:

..Issuer: America Movil, B.V.

....Outlook, Changed To Stable From Rating Under Review

..Issuer: America Movil, S.A.B. de C.V.

....Outlook, Changed To Stable From Rating Under Review

..Issuer: Telefonos de Mexico, S.A.B. de C.V.

....Outlook, Changed To Stable From Rating Under Review

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.

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.

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.

Nymia C. Almeida
VP - Senior Credit Officer
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
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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