CHICAGO, May 18 /PRNewswire/ -- Duff & Phelps Credit Rating Co. (DCR) has
reaffirmed the 'BBB+' (Triple-B-Plus) senior debt rating and Stable Outlook of
Compania de Telecomunicaciones de Chile (CTC). This reaffirmation
acknowledges the decline of credit protection measures attributable to the new
tariff decree and softened demand in a recessionary environment. However, the
rating also recognizes an expected improvement in financial performance in the
second half of 2000, the sale of its cable TV assets, revenue increases from
high-growth businesses, the implementation of cost reduction measures and
CTC's dominant position within the Chilean telecommunications industry.
Furthermore, the CTC rating also reflects risks posed by unbundling
requirements.
On September 30, 1999, DCR lowered the senior debt rating of CTC to 'BBB+'
(Triple-B-Plus) from 'A-' (Single-A-Minus). The decrease was due to the new
tariff decree, which directly impacts local revenues (local revenues represent
approximately 40 percent of total revenues and 82 percent of EBITDA). New
rates were applied retroactively to May 5, 1999. These rates reduced 1999
revenues by US$146 million and the average regulated revenue per line by 24.7
percent. EBITDA-to-Interest declined to 3.1 times in 1999 from 4.8 times in
the prior year. DCR expects EBITDA-to-Interest to remain below 5 times in the
near term and EBITDA margins to strengthen to 45 percent in 2000 from 38
percent in 1999. Despite lower rates, CTC increased 1999 total revenues by 9.5
percent due to contributions from its rapidly growing mobile and data
businesses and also from the acquisition of Sonda. Local service will
continue to represent the largest revenue source, but wireless and data units
will grow as a percentage of total revenues and CAPEX allocation.
CTC has announced the sale of its cable TV assets to Cordillera
Communications. DCR views the sale as a positive credit event, which will
generate US$270 million and more importantly allow the company to deploy new,
high growth, Internet-related services such as ADSL and B2B services. CTC and
Cordillera Communications are currently involved in arbitration proceeds over
the deployment of new Internet services. Currently, an injunction prohibits
CTC from deploying new Internet-related services, except those provided by
regular switched access. The injunction is expected to be lifted when the
sales contract is signed on June 30, 2000. The sale includes CTC`s 40 percent
interest in the Metropolis-Intercom cable TV operator (Cordillera owns 60
percent of Metropolis-Intercom), its 100 percent stake in the cable
infrastructure and its 100 percent stake in Plataforma Tecnica Red Multimedia
S.A. (cable TV installation and maintenance services subsidiary).
CTC has implemented a cost reduction plan that should generate US$70
million per year. This plan is not expected to fully offset the erosion of
financial performance resulting from the new tariffs but demonstrates
management's commitment to improving results.
DCR does not discount the risks to market share and revenues posed by
unbundling. However, unbundling of network elements is in its early stages
and, absent excessive discount levels, DCR expects no material effect on CTC's
local exchange business, in the near term. Furthermore, DCR expects CTC to
retain its dominant position in local telephony, through the introduction of
new products and the improved competitive position associated with its lower
rates. CTC currently enjoys an 86 percent market share in local telephony and
is either the No. 1 or No. 2 operator in each of its business units.
CTC is the largest telecommunications enterprise in Chile, providing local
exchange, domestic and international long distance, equipment marketing,
wireless telephony and data transmission services among others.
For additional research on Compania de Telecomunicaciones de Chile, visit
DCR`s Web site at http://www.dcrco.com (Quick Search: Compania). DCR`s
research is also available on Bloomberg at DCR, FirstCall`s BondCall
Direct/Research Direct at http://www.firstcall.com and Multex at
http://www.multex.com, as well as through other third-party providers.
SOURCE Duff & Phelps Credit Rating Co.
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CONTACT:
Randy Alvarado, 312-368-3117,
alvarado@dcrco.com, or Michael Weaver, 312-368-3156,
weaver@dcrco.com
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