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Fitch: America Movil's Credit Quality Under Modest Pressure Following KPN Offer

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Fitch Ratings says that it views America Movil's offer to buy the remaining 70.23% of KPN it does not already own for approximately EUR7.2 billion as a possible negative to credit quality as it holds the potential to increase America Movil's leverage.

The transaction, if successful and fully funded with debt, which is uncertain at this point, could result in a modest downgrade. Total debt to EBITDA could increase to approximately 2.5 times (x), and net debt to EBITDA to approximately 2.2x. As of June 30, 2013, America Movil's total debt to EBITDA and net debt to EBITDA were 1.8x and 1.7x, respectively, which is at the lower end of the 'A' rating category.

America Movil's offering will likely be contingent on America Movil acquiring more than 50% of the shares; pro forma leverage would be slightly below the pro forma leverage level stated above the minimum share purchase is realized. America Movil's current proposal is only a stated intention that America Movil intends to make a formal offer and submit an offering memorandum to the Netherlands Authority for the Financial Markets for approval and, once all documentation has been approved, expect to release the offering memorandum in September.

America Movil does have financing alternatives to a debt funding strategy that could be utilized, which could mitigate some of the ratings pressure but no details of the company's funding strategy has been disclosed at this time. Fitch will take a rating action once the final terms of the intended offering and funding strategy is known, or if the intended offering is not consummated.

Separately, Fitch does not expect America Movil's ratings and leverage to materially change if the pending transfer E-plus to Telefonica Deutschland for a 17.6% stake in that company plus EUR5 billion is successful or not.

Fitch believes that if America Movil acquisition of KPN completes, it will be positive for KPN's credit profile and KPN's ratings are could be upgraded by multiple notches. However, Fitch notes that there are a number of uncertainties surrounding the transaction and wish to wait to see how these get resolved before taking any rating action.

America Movil ratings incorporate its diversified fixed and wireless operations across Latin America, multiple service platforms, large scale, strong free cash flow, ample financial flexibility, solid liquidity and sound financial profile. The 'A' ratings of America Movil take into account Fitch's expectation that management will maintain a relatively conservative financial profile over the long term. A strong competitive environment underpinned by increasing regulation in Mexico and Colombia as well as declining prices in voice services temper the ratings.

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