TIGO - Millicom

[alwaysinvert]

Yeah, the results were great. The fiber component will grow a lot going forward. Operationally it was all positive.

But I severely question the judgment of paying back these long duration bonds for 103% of par when they choose to manage OCF at a certain level while a lot of capex is so clearly accretive and the stock is still completely in the shitter. They manage to miss their OCF target for the year of 1.4b to the upside by 100 million due only to Q4 performance. This despite increasing capex compared to earlier assumptions. And the stock is flattish after the report. You have to be some kind of PR anti-Midas to thread that needle.

I really don't get it, and they provide no explanation except wanting to lower interest costs and move towards the 2x target. Well duh. If they can't roll these loans later or pay them back, the business model isn't working anyway, so who cares then? They can't beat a ~6% hurdle with more growth capex or buying back stock? There is no real risk minimization in this move and thus it makes no sense for a thinking person if not for some other possible unmentioned motive.

[dwy000]

Is it possible the $600mn bank facility from October includes covenants that could be breached without the debt reduction?  Most covenants are net debt so repaying with cash should not impact it at all but I can't figure out otherwise what the rationale is for paying such a large premium to repay those bonds.  It's not even eliminating those bonds, it's a partial repayment of each. 

[WayWardCloud]

I agree with both the points above (puzzling use of cash flows but solid results).

In a world of very low returns on debt, how come Latin American cable operators still borrow at such high (5.5-6%) rates?
LILA and TIGO just went through a horrendous situation without getting seriously close to defaulting so it seems to me that they have proven their resilience to bond holders and banks.

I wonder what Tigo Money would be valued at if it were its own company? They could IPO the stub on the NASDAQ and would most probably receive a very rich valuation, use the proceeds to both accelerate the fintech growth and the buybacks/new builds on the cable side. Tigo Money may very well be the hidden crown jewel of Millicom down the line and it got a big acceleration from covid.

All in all, and despite the recent questionable use of cash (which we might not understand because we are not given the full picture), this looks like such a coiled spring to me and i see everything getting nicely into place for a huge run up, baring risks inherent to emerging markets (currency, political).

[alwaysinvert]

I can't find all the details but apparently UNE EPM lifted $139m in COP denominated bonds last week, which could partly explain the early redemption of USD bonds. Three tranches, 7-15y with the 7y yielding 5.56%. The early redemption certainly looks a lot better if we view that as a swap with longer maturities and debt in an over time more inflationary currency. Of course, only 50% of this new debt is proportionate to Millicom, so it can only be a partial explanation.

Anyway, Pareto released a sellside report today which was pretty decent. They think Tigo Guatemala by itself is worth $32 per share.

edit: I had some clarification from IR - the COP issue means no change in gross debt and is replacement for earlier local financing, a remainder portion which was in USD. So better currency matching but no relation to the bond redemptions. The other two tranches were "10 and 15 Year variable rate issues with 2.61% spread, implying 5.69% and 6.28% currently".     

[HeadOfLeverage]

The report looks quite conservative both on the deleveraging after covid and the revenue/ebitda growth in my opinion. I have a hard time believing that they won't try to reach their goals for homes passed etc. But I guess you can't publish a report with a target price too far from the current price.