Fitch Ratings has affirmed Millicom International Cellular, S.A.'s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB+' with a Stable Rating Outlook.

In addition, Fitch has affirmed Millicom's senior unsecured debt at 'BB+'.

Millicom's ratings reflect geographic diversification, strong brand recognition, and network quality, all of which contribute to leading positions in key markets, a strong subscriber base, and solid operating cash flow generation.

Millicom's ratings are currently constrained by the operating environments and country ceilings of operations that contribute to significant dividend flow.

The Board of Directors has confirmed that a potential acquisition of all outstanding shares in Millicom is being discussed with Apollo Global Management and Claure Group; however, there is no certainty that a transaction will materialize.

The Stable Outlook reflects Fitch's expectation that the company will maintain consolidated net leverage levels below 3.5x and that it will continue to lead in key markets.

Key Rating Drivers

Country Ceiling Constrained: Millicom's ratings are constrained by the 'BB' Country Ceiling of Guatemala, given that its operation in that country accounted for 57% of the upstream dividends received by the holding company for its debt service in 2022. The 'BB+' ratings of Millicom exceed the Country Ceiling by one notch due to geographic diversification of the balance of dividends that are received from its subsidiaries in countries such as Paraguay, Bolivia, Nicaragua and Honduras, as well as the USD600 million undrawn credit facility that could provide additional liquidity. The company's subsidiaries in higher rated jurisdictions, Colombia and Panama, have not historically distributed material dividends.

Strong Market Positions: Millicom holds the No. 1 or No. 2 position in most of its markets. Fitch expects Millicom's strong market position to remain intact, supported by network quality and coverage and growing fixed-line home operations. These qualities across its footprint are expected to enable the company to continue to generate stable cash flows and support growth opportunities in underpenetrated mobile data and fixed broadband services.

Solid Cash Flow Generation: Millicom's strong market position supports EBITDA margins in the low-to mid-30% range and FFO margins around 20%, consistent with an investment-grade operator. Fitch expects modest FCF generation, with capex of around 18% of revenues. Increased competition in markets such as Colombia and Paraguay could result in slightly lower margins in the near to medium term.

Weak Operating Environment: Millicom's upgrade and downgrade net leverage rating sensitivities of 2.5x and 3.5x, respectively, are tighter than similarly rated issuers with strong business positions due to the weak operating environment in most of the countries in which it operates in Latin America, as reflected by weak systemic governance, low sovereign ratings and GDP per capita. This can lead to more volatile operating conditions, in terms of political and regulatory stability and economic conditions, than faced by its peers in developed markets.

Moderate Deleveraging Expected: Millicom's debt-funded acquisitions of over the past few years have added pressure on its financial position. Fitch projects that the company's consolidated net debt to EBITDA ratio will fall to 3.0x in 2023 from an estimated 3.2x in 2022. Absent another acquisition or extraordinary dividends, net leverage should fall below 3.0x in 2024. Approximately USD2.5 billion of the company's USD7.9 billion of total debt as of Sept. 30, 2022, was at the holding company level. This compares with USD800 million of dividends received in 2022, resulting in a holding company debt to dividends received ratio of 3x, which is materially below the 4.5x downgrade sensitivity.

Derivation Summary

Millicom's ratings are well positioned relative to regional telecom peers in the 'BB' rating category, based on a solid financial profile and operational scale and diversification, as well as strong positions in key markets. These strengths are offset by high concentration in countries with low sovereign ratings in Latin America, which tend to have more volatile economic environments.

Millicom has a much stronger financial profile than diversified integrated telecom operators in the region such as Cable & Wireless Communications Limited (BB-/Stable) and Digicel Limited (CCC-), supporting a higher, multi-notch rating differential. Millicom's leverage is moderately higher than Empresa de Telecomunicaciones de Bogota, S.A. E.S.P. (ETB; BB+/Stable), but benefits from a stronger business profile that has leading market positions in multiple markets. Millicom also has a stronger capital structure and business profile than Axtel S.A.B. de C.V. (BB-/Negative), a Mexican fixed-line operator.

When compared with integrated investment-grade operators, such as Empresa Nacional de Telecomunicaciones (BBB/Stable) and Colombia Telecomunicaciones, S.A. E.S.P. (BBB-/Stable), Millicom has stronger profitability but with a somewhat weaker leverage profile. Millicom is rated below these operators due in part to its operating environments and the sources of its dividends, as well as its weaker leverage profile.

Key Assumptions

Fitch's Key Assumptions Within the Rating Case for the Issuer Include:

Low-single-digit revenue growth in 2023, due mainly to pricing pressure in mobile, low-to-mid-single-digit revenue growth thereafter;

Stable EBITDA margins in the 34% range;

Average capex/sales (including spectrum) of 18% over the medium term;

No material shareholder distributions in the short term.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Material and consistent dividends from Millicom's subsidiaries in Colombia and Panama;

An acquisition of EPM's ownership position in UNE EPM;

Total adjusted net debt/EBITDAR of 2.5x or below over the rating horizon.

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

Consolidated total adjusted net debt/EBITDAR at 3.5x or above;

Holding company debt/upstream dividends received consistently above 4.5x;

A downgrade to Guatemala's Country Ceiling;

A change in financial policy could have negative implications for Millicom's ratings.

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 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

Liquidity and Debt Structure

Strong Liquidity Profile: Millicom has a strong liquidity position, with a large cash position that fully covers short-term debt. As of Sept. 30, 2022, the consolidated group's readily available cash was USD884 million, which adequately covers its reported short-term debt obligations of USD129 million. Additionally, the company has a USD600 million undrawn revolving credit facility. Fitch does not foresee any liquidity problem for both the operating companies and the holding company, given the operating companies' stable cash generation and consistent cash upstreaming to the holding company. Millicom has a solid track record in terms of access to capital markets when in need of external financing, further supporting its liquidity management.

Issuer Profile

Millicom International Cellular S.A. is a diversified telecom operator with operations in nine countries across Latin America operating under the Tigo brand. The company provides B2C mobile services, B2C fixed telephony, pay TV and broadband services, B2B fixed and mobile services, and mobile finance solution services.

Summary of Financial Adjustments

Standard lease adjustments.

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.

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