Fitch Ratings has affirmed
Fitch has also affirmed Entel's National long-term rating at 'A+(cl)'. The Rating Outlook on the IDRs and National Long-term rating has been revised to Stable from Negative.
The stabilization reflects Entel's growth and sustained profitability in
KEY RATING DRIVERS
Profitable Growth in
Fitch expects further growth in the coming years as Entel consolidates its 24% market share in
Chilean Stabilization: In 2020 Entel's Chilean revenues grew by 5%, while maintaining an EBITDA margin of 33%. A 16% increase in Entel's postpaid subscriber base offset a 15% decrease in the prepaid segment as customers migrated to higher-value and recurring plans. This follows several years of declining revenues in the core Chilean mobile franchise, where competition has been high since the entry of
Steady Leverage, Manageable Amortization: Improvements in operating performance should contribute to a reduction in gross and net leverage metrics. Fitch expects Debt / EBITDA and Net Debt / EBITDA below 2.5x over the rating horizon. These levels are in line with the positive sensitivity and are commensurate with a 'BBB' financial structure (Debt / EBITDA of 2.8x).
Entel benefits from a manageable amortization schedule and low refinancing risk. The next major debt maturity is its
Investments to Pressure FCF: Fitch expects high investment requirements to fully consume cash flow from operations, driving negative free cash flow in the near term. Fitch also expects capital intensity of 26% of revenues in 2021, before declining to around 19% by 2023. These investment outlays are mainly due to the development of a new 5G infrastructure network and the 2021 payment of
Improving Geographic and Service Diversification: Entel's geographic diversification has improved as a result of the sustainable profitability of its Peruvian franchise. In
Equity Rating: Entel's equity rating is based on the company's credit profile, its long track record in the stock market, a 45.1% of free float and a market presence of 100%. Entel also reports market capitalization of
DERIVATION SUMMARY
Entel has a leading mobile market position in
Entel's direct domestic competitor,
Entel's financial profile is also weaker than UNE EPM Telecomunicaciones (Tigo UNE, BBB), which has adjusted net leverage of around 2.5x. Tigo UNE also has relatively more balanced cash flow diversification between mobile and fixed services, though UNE EPM is approximately half the size of market leader
Entel's ratings incorporate a weak linkage with
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Our Rating Case for the Issuer Include:
Chilean operational revenue with neutral growth in 2021-2023 period, while EBITDA margins decline to 33%;
EBITDA generation in
A dividends policy returning 30% of net income during 2021-2023 and with approximately
Capital intensity of around 26% in 2021, assuming payments of
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Total Debt / EBITDA sustained below 2.5x and/or Net Debt / EBITDA close to 2.0x
Stronger than expected cash flow generation in
Improving diversification, as Peruvian FCF improves
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Total Debt / EBITDA sustained above 3.0x or Net Debt / EBITDA above 2.5x, due to a weakness in
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
Improved Liquidity, Manageable Amortization: Entel's tower sale improved its liquidity, which reached
Entel's financial debt reached
As of
SUMMARY OF FINANCIAL ADJUSTMENTS
Standard operating lease adjustments;
Operating income adjusted for non-recurring items like asset sales;
FX hedge adjustments made to debt.
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
RATING ACTIONSENTITY/DEBT RATING PRIOR
Empresa Nacional de Telecomunicaciones S.A. LT IDR BBB- Affirmed BBB-
LC LT IDR BBB- Affirmed BBB-
Natl LT A+(cl) Affirmed A+(cl)
Nat Equity Rating Primera Clase Nivel 2(cl) Affirmed Primera Clase Nivel 2(cl)
senior unsecured
LT BBB- Affirmed BBB-
senior unsecured
Natl LT A+(cl) Affirmed A+(cl)
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
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