Initiating Coverage on Telecom Argentina: Solid Market Position but Uncertain Outlook

Near-term caution warranted as Telefónica deal and policy direction evolve

Executive Summary

• We are initiating coverage on Telecom with a Market Perform recommendation. We view the notes as fairly valued considering the uncertainty surrounding the potential acquisition of Telefónica. The transaction introduces near-term financial, regulatory, and operational risks, for which the company has not provided details, reflecting the complexity and scale of the deal. Additionally, the Milei administration continues to manage a complex policy mix that includes capital controls, inflation stabilization, and reserve accumulation ahead of the October 2025 mid-term elections. This contributes to elevated political and macroeconomic risk, which further compounds Telecom’s significant currency exposure. That said, improving macro indicators such as falling inflation, declining interest rates, and a stronger reserve position suggest a more supportive backdrop for investment and growth. We think this could help drive a recovery in ARPUs in USD terms and support Telecom’s network expansion plans. We believe Telecom is well-positioned to benefit from these trends but see a better entry point once there is greater clarity on the acquisition’s implications.

  • TECOAR’s 9.500% 2031 bonds, yielding 8.6% for a 4.0-year duration, compare modestly favorably to the broader EM B Index, which yields 8.5% for a 5.0-year duration, and reasonably better than the US B Index, yielding 7.8% for a 3.3-year duration. Current yields also compare well to some regional peers, including VISTAA (Caa1/BB-) 7.625% 2035 notes yielding 7.9% for a 6.1-year duration, TIGO (Ba3/BB+) 7.375% 2032 notes yielding 6.9% for a 4.0-year duration, and CWCLN (Ba3/BB-/BB-) 7.125% 2032 notes yielding 7.7% for a 5.0-year duration.

• Telecom maintains a strong market position, supported by its broad service scale and integrated offerings, which enhance customer retention and operational efficiency. The repeal of Decree No. 690/20 has improved pricing flexibility, though regulatory pressures and competitive dynamics remain key challenges. Nationwide coverage contributes to revenue stability, but profitability continues to be constrained by high inflation and currency devaluation. Ongoing investment in fiber and 5G infrastructure, along with effective macro risk management, will be critical to preserving Telecom’s market leadership.

• On February 24, 2025, Telecom Argentina announced the US$1.245 billion acquisition of 99.9% of Telefónica Móviles Argentina, aiming to strengthen its position as an integrated telecom provider. The deal was financed through a mix of debt assumption and loans totaling US$1.17 billion and could significantly expand Telecom's reach across mobile, broadband, and video services. Complete disclosures remain pending. However, on March 21, 2025, the government suspended the transaction due to antitrust concerns raised by the CNDC, which cited risks of excessive market concentration. Telecom has proposed remedies, including expanded MVNO access and infrastructure sharing, but regulatory uncertainty remains high.

• Telecom Argentina reported mixed 4Q24 results. Consolidated revenue declined 0.5% QoQ in real terms, though it increased 1.3% YoY, falling short of market expectations by 1.5%. The sequential decline was driven by inflation outpacing price adjustments. Reported EBITDA fell 4.1% QoQ but rose 2.8% YoY, missing consensus by 17.7%. The EBITDA margin narrowed 1.0 pp QoQ to 26.2%, as operating costs increased 0.9% QoQ despite softer top-line performance.

• From a credit perspective, the results reflected a 9.7% sequential increase in net debt (in USD: +3.1%) to P$2,739 billion (US$2.66 billion) as of December 2024, while LTM EBITDA reported in US Dollars rose 2.3% to US$1.13 billion. As a result, net leverage increased modestly to 2.4x from 2.3x in September 2024. The company’s liquidity remains weak, with short-term debt representing 3.3x its cash position and accounting for 37.1% of total debt. We note that the company lacks committed revolving credit facilities.

• Telecom has maintained solid market access, raising funds through both local and international markets. The company issued US$110 million in dollar-linked notes and US$75 million in local currency, while also placing US$817 million in international bonds between July and October at yields ranging from 8.75% to 9.7%. These actions extended the average maturity of its debt to 2.8 years as of December 2024, up from 2.5 years a year earlier. In January 2025, Telecom repaid US$160 million in Class 8 notes.