NII Holdings Inc.
) suffered a setback as credit rating agency Standard & Poor's
Ratings Services (S&P) downgraded the company. NII Holdings'
corporate credit rating was lowered from "B+" to "B" and its senior
unsecured debt rating was lowered from "B" to "B-." However,
S&P maintains its stable outlook for the company.
We believe the primary reasons for this rating downgrade was NII
Holdings' dismal performance in the second quarter of 2012 and
reduced outlook for the rest of 2012. Estimate for net subscriber
addition for fiscal 2012 was reduced from 1.4 million to 1
Full-year 2012 operating revenue is now estimated at $6.1
billion compared with $7.1 billion estimated earlier. Similarly,
newly projected consolidated OIBDA is $1 billion in contrast with
$1.4 billion projected earlier.
Management cited massive fluctuations of foreign currency rates,
lower average revenue per user (ARPU), higher costs for deploying
3G networks, and aggressive competition from large wireless
carriers, such as
America Movil S.A.B.
) in the Latin American markets are the main factors for
disappointing future outlook.
Nevertheless, NII Holdings has taken four steps to revamp its
business model. These include: (1) deployment of nationwide 3G
wireless networks in Mexico, Brazil, and Chile in 2012 (2)
enhancement of iDEN network and integration of this technology with
3G wireless technology (3) enhancement of its brand value through
inclusion of more retail outlays and expanding the existing
distribution channels (4) using state-of-the-art IT technologies to
develop an innovative back-office, which will enhance the
productivity and efficiency of its employees to properly service
We believe these restructuring activities along with a reduction
in 3G network roll out costs may improve the company's operating
margin in 2013. We maintain our long-term Neutral recommendation on
NII Holdings. Currently, it holds a Zacks #3 Rank (Hold) on the
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