Fitch Affirms EI Towers at 'BBB'; Outlook Stable
Published on: 8th May 2014
Fitch Ratings has affirmed Italy based EI Towers's (EIT) debt ratings at 'BBB' with a Stable Outlook. Fitch has also affirmed EIT's senior unsecured rating at 'BBB'.
Fitch said that the ratings reflect EIT's stable business profile with a highly visible revenue stream derived from long-term, inflation-linked contracts. Fitch expects earnings and cashflow to be stable, given the strength of the company's competitive position, new contracts from mobile players, and efficient management of its cost base. The ratings also reflect a weak legal parent-subsidiary linkage between EI Towers and Mediaset, which has reduced its shareholding to 40% from 65% but will still retain control. The limited impact of Mediaset on the credit profile of EIT reflects antitrust regulation enabling the latter to maintain its operational independence.
EIT intends to diversify further into the mobile and radio segments, and could be interested in acquiring a portfolio of mobile towers from either Wind Telecomunicazioni or Telecom Italia. A deal would likely attract competitors, for example infrastructure funds and international players. However, EIT is well-positioned for a deal given it is the only privately owned - and listed - player in Italy.
Fitch notes that while M&A could result in an increase in leverage, the likelihood of a transaction remains uncertain at present and would therefore be treated as event risk.
Mediaset sold 25% of its stake in EIT in April 2014, bringing its total shareholding down to 40%. However, Mediaset will retain control of EIT, having appointed the Board of Directors and no change is expected in the business relationship between the two entities. Companies in the Mediaset Group accounted for 77% of EIT's revenues in 2013. Fitch believes that the weak legal parent-subsidiary linkage will continue, based on antitrust regulation helping to maintain the independent operations of EIT, the lack of cross-default and debt guarantees, and the small size of EIT's dividend stream relative to Mediaset's debt service requirements.
Stable Business Profile
Revenues were steady in 2013 following the completion of digital switchover in 2012, as new volumes offset the loss of one-off installation revenues and the loss of small TV broadcasters gradually exiting the market. Future earnings are likely to be supported by new hosting contracts, particularly with mobile operators, accelerated cost efficiencies, and the assignment of additional radio spectrum for free-to-air digital terrestrial television (DTT).
Strong Market Position
EIT's competitive position is protected by high switching costs for customers and high barriers to entry, as well as by a strict regulatory framework for the construction and development of new towers in Italy. Although product differentiation is rather limited, Fitch views EIT as having strong bargaining power due to the critical nature of services rendered and limited competitive threats from the only alternative operator Rai Way S.p.A.. DTT is expected to remain the dominant TV distribution platform in Italy, owing to the lack of cable infrastructure and the costs of rolling out fibre on a nationwide basis.