Cellnex Telecom : All options remain on the table

>The tower industry is heating up in Europe, and material acquisitions would weigh on Cellnex’ credit metrics - Several telecom operators are considering to monetize their tower assets, including Altice (which expressed its willingness to sell non-core assets including tower masts in November), Deutsche Telekom and Telecom Italia. Deals in France, the Netherlands and Italy would be especially attractive for Cellnex as they would create synergies with its existing portfolio in these markets. Large acquisitions would probably lead to a deterioration of credit metrics and negative rating actions, as Cellnex indicated that it may temporarily raise its net leverage up to 6.5x (vs. 5.4x at end-September 2017) in case of a good opportunity. Such level would likely lead to a rating downgrade by Fitch, and an outlook revision or a rating cut by S&P. There are no leverage covenants in the credit lines and the bond documentation.Its ownership could still change as part of the Abertis M&A saga - There has not been any tangible progress on this front. Since our last report, Atlantia’s bid on Abertis, Cellnex’ largest shareholder with a 34% stake, was authorized by the Spanish stock exchange regulator (CNMV) on 9 October. It was rapidly followed by a counterbid made by Hochtief at € 18.76/share, which still needs to obtain CNMV’s greenlight (due in late January or early February 2018). Both Atlantia and Hochtief are expected to improve their initial offers and best and final offers are likely to be unveiled in March according to a Reuters article dated 6 December 2017. We still think that Cellnex’ ownership could change if one bid comes to fruition, and both US towercos Crown Castle (Baa3 neg/BBB-) and American Tower (Baa3/BBB-) declared that they are interested in Western Europe assets, but at the right price.We lower our credit opinion to Stable and maintain our recommendations: Neutral on the 22 notes, Buy on the 24 & 25 notes - At current spreads, we prefer to stick to our Neutral recommendation on the 2022 notes, and our Buy recommendation on the 2024 and 2025 notes. The recent correction was triggered by the multiple announcements made in the course of November (Altice’s willingness to dispose non-core assets, Cellnex’ confirmed appetite for external growth…). The spread of Cellnex notes now factors in a rating downgrade to BB at S&P, and we think investors would rather raise positions when a large acquisition will be announced, as Cellnex would get closer to its 6.5x maximum leverage and then would start de-leveraging towards its 4.0x-5.0x target in 2020. They may also benefit from a CoC scenario later on.