EM LATAM CREDIT: Telecom Argentina (TECOAR; Caa1 /B- /B): Fair Value Opinion
“*NEW DEAL: TELECOM ARGENTINA $BENCHMARK 8Y MID-9% AREA”
IPTs 8Y: Mid 9% Area
FV 8Y: 9% Area
• Telecom Argentina proposed a USD denominated senior unsecured benchmark size amortizing 8-year bond (7.5-year WAL). Use of proceeds will be to repay loans related to the acquisition of Telefonica Moviles Argentina from Telefonica of Spain.
• Outstanding TECOAR 2031 notes were last quoted T+429bps or 8.43%, 37bps tighter QTD and 15 bps tighter YTD. The bonds are quoted 32bps wider than Argentina government-controlled energy company YPF (YPFDAR; Caa1 /B- /CCC) with 8.75% 2031s at T+397bps or 8.11%.
• YPF has 2034 bonds amortizing bonds quoted 8.45% so that would imply a new TECOAR 8-year amortizing bond at 8.77% plus a new issue concession.
• We can also consider Pampa Energia (PAMPAR; Caa1 /B- /B-) which has a significant portion of EBITDA derived from regulated businesses with 2031 notes yielding 7.37% and December 2034 notes (not amortizing) tapped yesterday at 8%.
• TECOAR 2031s were quoted about 106bps wide to PAMPAR so that would imply 9.06% for a 9.5 year TECOAR but the proposed new issue is shorter dated with a 7.5-year WAL so the fair value yield should be lower and consistent with our YPF comparison of 8.77% plus a concession.
• Telecom Argentina has the second highest market share behind Mexico based America Movil’s Argentina subsidiary and ahead of Telefonica’s Argentina subsidiary according to the company. The balance sheet was also reasonably leveraged, reported at 1.9x net debt/EBITDA 1Q 2025.
• Telefonica of Spain is seeking to divest all its Latin America subsidiaries except Brazil and announced February 2025, that it was selling its Argentina subsidiary for USD1.25bn to Telecom Argentina which would result in a merger of the number 2 and 3 operators in the country.
• The Argentina government announced it would conduct a review of the transaction with concerns about a monopoly in the telecom market. Telecom Argentina projected a 58% market share of the Argentina mobile telecom market but still would lag competitors in other businesses such as Broadband and fixed line.
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