MSI Motorola Solutions Inc

Rating agency Standard and Poor’s (S&P) has lowered Latin American wireless operator NII Holdings Inc.’s (NIHD) credit rating further to junk status but has retained a stable outlook. Deterioration in the credit measures mainly compelled the rate cut.

S&P downgraded NII Holdings’ corporate credit rating by one notch to B- from the previous B rating status. The company’s debt now falls six tiers below the investment grade and is the second of its kind in the last six months after its rating was lowered in August following weak second-quarter 2012 results.

According to the rating firm, delay in deployment of 3G network in Brazil puts the telecom carrier in a disadvantageous position as opposed to its peers and the company will continue to face subscriber loss until it rolls out 3G services in the second half of 2013. The wireless operator faces pricing and foreign exchange pressures in the Latin American markets, which have lowered its ARPU (Average Revenue Per User) thereby impacting its top line and bottom line.

Apart from the regulatory and economic risks, the company is also exposed to technological risk because it is in the process of phasing out Motorola Solution’s (MSI) integrated digital enhanced technology (IDEN), which is a less popular wireless network and has fewer subscribers.

S&P expects the company’s EBITDA to decline 20% in 2013 from about $900 million in the previous year. The company may issue new debts in 2013 to fund its free operating cash flow losses, which in turn may increase its leveraged position.

NII Holdings lags far behind rival America Movil S.A.B. de C.V. (AMX), which has rolled out 3G services in several Brazilian cities and Telefornica SA (TEF), which commands a major share of the Brazilian 3G market. The company’s financial condition is expected to remain weak in 2013 as the company continues to spend on 3G roll out in Brazil. We believe the company could face further downgrades if it fails to quickly deploy its 3G network in Brazil.   

Currently, NII Holdings carries a Zacks Rank #4 (Sell).

 
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