Panama, September 15, 2021 – Cable & Wireless Communications Limited (C&W, Ba3 negative) and America Movil, S.A.B. de C.V. (AMX, A3 negative) announced plans for AMX to sell its Claro Panama S.A. unit to C&W for $200 million. This transaction is positive for all participants, including the three remaining telecom competitors in Panama – C&W, Cable Onda, S.A. (Ba2 stable) and Digicel Group Holdings Limited (Caa2 stable) – because the deal would take AMX out of the Panama market, and allow a more rational competition.
The sale would also allow each competitor to hold more 5G cellular capacity, although a 5G auction date has yet to be set. AMX’s sale of Claro Panama would consolidate C&W as one of the largest operators in Panama.
The transaction has no material effect on the operators’ credit metrics, but it is credit positive for C&W, helping the company to consolidate its competitive position in Panama, C&W’s main market. C&W will generate 27% of its revenue in Panama, up from 22% today, and the new assets will represent around 6% of C&W’s consolidated revenue and around 4.4% of its EBITDA, as per our own estimates.
C&W plans to finance the acquisition using incremental borrowings and C&W own cash, which totaled $534 million as of June 2021. While the additional debt won’t be material, C&W’s debt/EBITDA ratio of 5.3x as of June 2021, including our standard adjustments, is high for the Ba3 rating category. We expect the company it to gradually return to pre-pandemic levels in 2022-23, although risks remain high.
The transaction will give C&W an improved market position in Panama with roughly half of the market share. We expect that the consolidated company will generate an EBITDA margin in the high-30 percent range, improving as it extracts synergies and improves its leverage.
Buying Claro Panama effectively gives C&W 760,000 more subscribers in Panama, on top of its roughly 1.6 million only in Panama, and 3.3 million subscribers, on a consolidated basis, as of June 2021.
Increasing competition since 2018 and later the coronavirus pandemic, have hampered C&W’s performance in recent years, costing the company some of its prepaid subscribers and reducing its average monthly revenue from subscriptions. A new marketing campaign in 2019 and continued upgrades to its network helped C&W’s curb its subscriber losses. But Panama’s restrictions on movement in 2020 because of the pandemic, which the government relaxed throughout the year but then reinstated in the first quarter of 2021, hurt C&W’s average revenue per user and its EBITDA. Those results came despite the company’s efforts to contain expenses and its addition of 61,100 mobile subscribers in the first quarters of 2021.
The transaction also benefits AMX, giving the Mexican telecom conglomerate $200 million that it plans to use to repay debt and further advance toward its net leverage ratio target of 1.50x from 1.64x as of June 2021. Claro Panama currently represents less than 1% of AMX’s consolidated revenue. AMX will retain the Claro Panama towers but plans to spin them off, along with most of its roughly 35,000 towers in Latin America, probably by early 2022.
C&W’s purchase of Claro Panama follows a pattern of telecom consolidation in Panama. In 2019 Cable Onda acquired Telefonica Moviles Panama, then the country’s mobile market leader. Panama fast-growing economy, with one of the largest growth rates per capita in the region, offers telecom operators there good opportunities for growth in a very competitive market.
Credit Outlook: 20 September 2021. Pg. 6
Moody’s Investors Service
Atlantic Investors Service 