We maintain our Neutral recommendation on Telecom Argentina (B2/B/B-) and move to a bond-level Overweight on the TECOAR 8.500% 2036 notes, which remain our preferred expression within the curve. The issuer stance is a valuation decision rather than a cautious view on the direction of the credit. Telecom exits 2Q26 with stronger profitability, lower leverage, positive free cash flow and a maturity profile that allows us to assess liquidity as adequate rather than weak. The risk has shifted. Regulatory approval of the TMA acquisition is no longer the question. The question is how much of the operating improvement Telecom preserves after executing the required customer, spectrum and network divestitures. Against that backdrop, we think the credit continues to improve, but current valuations do not support a broad issuer-level Overweight.
The fundamental case is stronger than when we moved to Neutral. Profitability improved at both platforms in 2Q26, with broad cost discipline supporting earnings across the enlarged group. Net leverage declined to 1.48x and free cash flow remained positive despite elevated network investment. We also revise our liquidity assessment to adequate from weak. Headline short-term coverage remains below 1.0x, but Telecom faces only around US$330 million of principal maturities during the remainder of 2026 against US$645 million of cash and financial investments, close to 2.0x coverage of scheduled principal. Average debt life has lengthened to 4.8 years after another quarter of refinancing and prepayments. Liquidity remains the principal balance-sheet constraint, in our view, but it is no longer the central risk to the recommendation.
We would not treat the 2Q26 margin or free cash flow as a new run rate. Network investment remains elevated, and some normalization in cash generation would not change our view while leverage stays low and refinancing requirements remain manageable.
