América Móvil plans $30bn investment
As CFO of the Americas' largest telecoms company, Carlos Moreno has been at the forefront of América Móvil’s expansion. In an interview with Euromoney, he discusses the company’s recent investment programme, financing it, and how critical a unified cash management system has been to its enlarged international operations.
América Móvil has been executing a bold acquisition and investment strategy in the past three years, consolidating its leading market position in the Americas at the same time as seeking investments farther afield.
The European telecoms sector has been one of the most attractive targets, where Carlos Slim’s company has sought to capitalize on depressed valuations while diversifying away from slowing growth in the Americas.
América Móvil’s latest move to snap up a European asset came in August last year when it tabled a voluntary public offer in cash for all issued and outstanding ordinary shares it did not already own in Dutch telecoms group KPN. However that bid, worth just over €7 billion, hit the skids over price in October last year. América Móvil must wait six months before mounting a fresh offer.
Speculation had emerged that América Móvil could instead turn its attention to Telekom Austria, in which it already owns a 23% stake, but chief executive Daniel Hajj has said that any bid is not on the cards for now.
|Carlos Moreno, CFO América Móvil|
Although Europe offers attractive investment opportunities, it is in the Americas that América Móvil has expanded most since 2010 when it kicked off its investment spree with the $23 billion purchase of a 60% stake in Teléfonos de México (Telmex), increasing it to 93% in 2011. Today, América Móvil has operations in 18 countries in the Americas, has more than 265 million mobile customers, over 31 million fixed-line, and some 19 million broadband and 19 million television subscribers.
As a result, total earnings before interest, tax, depreciation and amortization grew to Ps200 billion ($15 billion) in the three quarters to the end of September last year, with total revenues of Ps600 billion.
América Móvil’s share price has come under pressure as a result of the Mexican regulator’s move to reduce its market dominance in its home market, but share buybacks last year worth $5.4 billion have helped prop up the stock. The company is expected to continue buybacks this year, capital outlay that may form a part of its large investment programme.
“América Móvil has grown tremendously in size since 2010, and since then we have embarked on a major investment programme, investing $10 billion a year for the past three years,” Moreno tells Euromoney.
“We expect to invest another $10 billion a year for the next three years. This means that the financing side has been very active for us.”
Last September, for instance, América Móvil sold its first hybrid bond, raising the equivalent of $2.8 billion in three tranches – two euro tranches worth a combined €1.45 billion and a sterling tranche of £550 million.
However, Moreno says the hybrid bonds were specifically designed to improve the company’s balance sheet and reduce leverage, which had risen to a level the rating agencies said was not in line with its current ratings of A2/A-/A, and not to finance an acquisition, such as for KPN.
Overall, América Móvil was a prolific issuer on the international and domestic Mexican peso bond markets last year. But away from financing, Moreno says that just as important has been ensuring the company can successfully manage the collection of payments from all its operations.
“One area we have been focusing more on is in our cash management operations, and particularly in ensuring that we have a homogenous platform for all our operations,” he says.
“We have over 300 million customers, which means the issue of payment collection is very important to us. Having prepaid clients and contract clients, as well as reconciling numerous bank accounts and managing numerous receivables accounts can be a very complex operation. However, our cash management platform simplifies all of that.”
América Móvil uses Citi as it global cash manager, providing a central, unified cash management platform for all of the company’s operations. The relationship goes back many years, making Citi one of América Móvil’s most important relationship banks. In 2011, both companies even announced a $50 million joint venture to offer mobile banking services in Mexico and throughout Latin America.
The joint venture, called Transfer, allows América Móvil’s customers to use basic mobile telephones to set up bank accounts, transfer money, withdraw cash from automatic teller machines, make purchases in stores, receive payments and pay bills.
It’s the type of relationship that banks are striving to secure with their corporate clients because the cash management, and transaction banking business more broadly, is seen as a gateway to winning more business, and especially in areas such as M&A advisory and capital markets.
But does this mean Citi is better positioned to win more ancillary business from América Móvil? Moreno says not. “We have a number of relationship banks and they support us in certain capacities that are very important to us. We limit any such business to those banks in the relationship,” he says. “Citi has been one of those banks for a long time, and as such it can of course try to win business from us on the capital markets side and advisory. But that Citi is our global cash manager does not mean they will always win other business.”
Indeed, Deutsche Bank, for example, advised América Móvil on its bid for KPN and along with Barclays and BNP Paribas acted as a bookrunner on the company’s inaugural hybrid bond. América Móvil’s other relationship banks were also active for the company on the financing side throughout last year, but few were as active as Citi across three markets.
The US bank was a bookrunner on América Móvil’s $750 million three-year floating rate note last September – the company’s first ever – a euro tranche in July, and also worked on its dual-listed local peso deal.