América Móvil strengthens its Central America footprint

Latin America's largest telecommunications operator, América Móvil, just got bigger and looks poised to take the fight with Luxembourg-based Millicom up a notch in El Salvador and Guatemala, where Telefónica is bowing out.

After months of speculation regarding the future of heavily indebted Telefónica in Central America, part of the answer was revealed this week when the company announced the sale of its operations in El Salvador and Guatemala for US$648mn.

Telefónica owns 59.6% of the Salvadoran operations and 60% of Guatemala's. Its capital partner in both countries, Guatemala-based Corporación Multi Inversiones - owners of the popular Pollo Campero restaurant franchise - also agreed to sell its part on the business to Carlos Slim's telecoms operator.

The operation for Guatemala was closed on Thrusday while the El Salvador one was still pending regulatory approval, the companies said.

Telefónica said in a statement that it will receive approximately 120mn euros after taxes and minority interests. The transaction valued the operations at 9.7 times its expected 2018 operating income before depreciation and amortization (OIBDA).

Details on the transaction, including its funding, were not immediately disclosed and América Móvil did not respond to a request for comment. Telefónica said in its statement that the transaction is part of its debt reduction strategy.

Telefónica's net debt to EBITDA ratio of around 3.5, at 42.6bn euros, has been a source of criticism from analysts and shareholders. The company has been slashed its debt 9.7% in the 12 months through September 2018.

América Móvil, with a net debt to EBITDA ratio of 2, has also been criticized for being over indebted.

Company executives are likely to be grilled on the subject in February, when both América Móvil and Telefónica are expected to present their 2018 financial results.

A TWO-HORSE RACE IN GUATEMALA

The operation will turn Guatemala's mobile market into a two-horse race, pitting América Móvil with close to 47% of the market, against Millicom's Tigo unit with 53%, according to market data. As of 2Q18, Telefónica's local Movistar unit had 19% of the market and was the third operator.

Millicom reported growth of 7.1% to 10.6mn mobile subscribers in Guatemala in 3Q18, along with a 5.3% rise in revenue to US$341mn.

América Móvil and Telefónica only report Central American data as a region, without breaking it down per country. Nevertheless, the Mexican operator said in its last quarterly report that its Guatemalan unit had suffered from increases in commercial costs that had pressured EBITDA, while its El Salvador unit was posting "solid improvements."

Now América Móvil gains 9mn subscribers in Guatemala alone, who will join the 15.9mn users on the Mexican operator's Central American network as of Q3.

According to ITU data, as of 2017 El Salvador had close to 10mn mobile lines with a teledensity of 151 lines per 100 inhabitants. Millicom reported 2.5mn mobile subscribers in 3Q18. Competition in El Salvador also includes Caribbean operator Digicel and local player Intelfon.