Medellín looks to dilute share in telco Tigo-Une

Medellín’s administration asked the Colombian city's council to authorize the dilution of EPM's share in UNE EPM Telecomunicaciones (Tigo-Une), according to a regulatory filing.

The move follows debate about the lack of a capitalization agreement between shareholders Millicom (49.9%) and Medellín-owned EPM (50%).

Last week, a proposal emerged to issue 228mn shares subject to the right of preference, aiming at a 603bn-peso (US$153mn) capitalization, shouldered in equal parts by EPM and Millicom. But EPM rejected the proposal, after which Millicom wanted to “give instructions to the board of directors for the preparation, subject to the right of preference, of the subscription regulations for all of the company's reserve [treasury] shares.”

If Millicom took responsibility for the entire capitalization, EPM’s share in Tigo-Une would fall to around 2%, according to the request, leading mayor Daniel Quintero to call for the protection of public assets.

Quintero initially wanted Millicom to submit the request to the council, but the company refused. EPM tried selling its participation last year, but the council did not approve the decision.

Both companies must reach an agreement by October 9 or a corporate reorganization process will start.

“In our opinion, there are no clear actions among the partners that make us consider that this transaction can be consolidated before this date,” BRC, a unit of rating agency S&P Global, said in a report.

A failure to capitalize Tigo-Une would exacerbate liquidity pressures and business risks, according to the report.

The capital increase promoted by Millicom would allow for the payment of financial obligations and strengthen its assets, “which could give a signal of financial stability to the market to access the necessary guarantees for the renewal of the electromagnetic spectrum,” the report said.

According to BRC, cash available in August would pay only 45.5% of the maturities scheduled for October worth 235bn pesos.

The regulatory filing said that 500bn pesos must be paid in October to banks for spectrum and that a policy must be presented that supports payments of US$200mn to the government.

“Although there are still current liquidity strategies by management to access alternative sources that allow Tigo to improve its liquidity, we consider that these also depend on conditions beyond its control,” the report added.

BRC downgraded the long-term debt rating from 'A' to 'BB', with a negative special review status, for bonds issued in 2011 and 2016.

Tigo-Une

WOM's entry into the Colombian market pushed Tigo into a price parity strategy, which led to a fall in average revenue per user from 52,300 pesos to 36,400 pesos, according to the filing.

Tigo is the fourth operator and has an 18.4% market share, behind Claro, Movistar and WOM.

Tigo-Une's situation worsened after the acquisition of spectrum in the last tender, as the COVID-19 pandemic, increased competition, and political and macroeconomic volatility negatively affected the business.

Millicom also proposes the sale of Tigo-Une’s fiber optics and cable TV infrastructure to a neutral network company, as well as the integration of mobile networks with Movistar.

Tigo-Une invested over US$100mn so far this year in network deployment and maintenance.