América Móvil’s shareholders have approved plans to create a new tower company, Sitios Latinoamérica which will be listed on the Mexican Stock Exchange. América Móvil’s portfolio of c. 36,000 sites, which are split across 15 markets, will move into the entity, with América Móvil shareholders to receive equal shares in the new towerco. TowerXchange examines the news and the implication for the CALA tower market.
As reported by TowerXchange, in February 2021, América Móvil’s Board of Directors approved a plan to spin off the operator’s tower portfolio into a separate entity. At an extraordinary general meeting held on 29 September, América Móvil’s shareholders voted to move forward with plans to form a new public company - Sitios Latinoamérica - which would be separately listed on the Mexico stock exchange.
América Móvil’s shareholders will receive the same number of shares in Sitios Latinoamérica for every share they hold in América Móvil (giving an initially identical shareholding pattern), but the operator itself will not own any shares of Sitios Latinoamérica. The two companies will operate autonomously with separate management, operational, commercial, and financial objectives.
América Móvil will form Sitios Latinoamérica by contributing the shares of its subsidiaries that hold towers in each market. Beginning December 2020, América Móvil has been undertaking a reorganisation to form such subsidiaries. Figure 1 (below) illustrates the separation executed, or to be executed in the coming months.
América Móvil and Sitios Latinoamérica will enter into medium- and long-term lease agreements. Whilst the details of the Master Lease Agreements are yet to be revealed, América Móvil references “market terms available to other telecommunications operators.” This indicates an approach towards an independent towerco industry standard, rather than the anchor tenant favourable terms that have been seen in some carve outs.
Sitios Latinoamérica will have a portfolio of just over 36,000 towers across 15 markets (figure 2) with América Móvil indicating an approximate potential EBITDA of Ps.7bn (US$344mn) for the business.
Telesites, América Móvil’s towerco formed through the carve out of the operator’s Mexican tower portfolio (and also includes a small number of sites in Costa Rica) is excluded from Sitios Latinoamérica’s perimeter, and will continue to operate as a separate entity.
Figure 1: The separation of América Móvil’s passive infrastructure to form Sitios Latinoamérica
Figure 2: Sitios Latinoamérica’s tower portfolio by country
The size and shape of Sitios Latinoamérica’s tower portfolio
Upon completion of the spin-off, Sitios Latinoamérica will own 36,000 towers, making it the tenth largest towerco globally (figure 3) and second largest in the region. Across the 15 markets in which it operates, Sitios Latinoamérica owns c. 19% of the total stock of towers.
35% of Sitios Latinoamérica’s towers (12,539) are in Latin America’s largest economy and telecoms market - Brazil, with 12% in Argentina (4,435 sites), 10% in Peru (3,687 sites) and the balance spread across the remaining 12 markets.
Figure 3: The world's top 10 towercos by tower count
Growth opportunities and towerco competition for Sitios Latinoamérica
Towercos currently operate in 14 of Sitios Latinoamérica’s 15 markets (Uruguay being the sole market where towercos are yet to establish themselves) with the most sizeable competitors being American Tower (present in 6 of Sitios Latinoamérica’s markets), SBA Communications (present in 10), Phoenix Tower International (present in 8) DigitalBridge’s Highline and Andean Telecom Partners (collectively present in 3), Grupo Torresur (present in Brazil), and IHS Towers (present in Brazil and Peru).
Sitios Latinoamérica will compete with such companies and a host of smaller players as they look to drive up the tenancy ratio across their portfolio. América Móvil had previously viewed its passive infrastructure footprint as a source of competitive advantage, with little emphasis on opening up the assets to competitors. No tenancy ratio has been revealed by America Movil but given the low levels of infrastructure sharing, this is expected to be a little above 1. As such, there is a significant runway for growth.
4G rollout is still ongoing across many markets, and 5G spectrum auctions are just beginning across the region, both of which will offer significant organic growth opportunities to Sitios Latinoamérica through both co-locations and new build. Whilst the region has been badly impacted by the COVID-19 pandemic, and towercos have seen a slowing of new build in the past 12-18 months, signs suggest an uptick in activity as we enter 2022.
There has been no mention of whether Sitios Latinoamérica will be América Móvil’s preferred supplier of new sites and no new build contracts have yet to be mentioned in the spin-off plans. Such an arrangement would be beneficial to the common shareholders of the two parties and such agreements have been commonplace in carve outs and tower transactions.
Sitios Latinoamérica’s formation will present significant competition for co-locations and new build to the towercos operating in its markets. It will also remove inorganic growth opportunities for Central & Latin Americas’ towercos. América Móvil’s competitors such as Telefónica (owners of Movistar), and Millicom (owners of Tigo) have been steadily monetising their tower portfolios through sale and leaseback transactions over the past ten of so years, providing towercos the opportunity to gain scale. América Móvil’s decision to pursue an alternative strategy takes their towers off the table, although their comment that Sitios Latinoamérica will have “sufficient capacity to maintain and dispose of its own assets” suggests tower sales may not be totally out of the picture.
How Sitios Latinoamérica compares to other listed towercos
Following América Móvil’s strategy for their Mexican towerco Telesites, Sitios Latinoamérica will be separately listed on the Mexico stock exchange. Direct comparisons between Sitios Latinoamérica and Telesites are difficult considering Telesites is half the size of Sitios Latinoamérica and operates in just one market compared to Sitios Latinoamérica’s 15. Telesites has also taken advantage of some REIT-like benefits in Mexico by moving just under 7,000 sites to a new real-estate investment trust, or FIBRA in 2020.
Whilst Telesites and Sitios Latinoamérica do/will not have América Móvil as a shareholder, they share a common set of investors with the operator (Carlos Slim being a majority investor in all entities) which muddies the water in regards to their perceived independence . Typically, towercos majority owned by one or a set of operators trade at a discount to their independent peers, a factor which contributes to the lower 4.1x and 8.4x EBITDA multiples of China Tower and Indus Towers (figure 4).
In these instances, the structure of the MSAs give more preferential terms to the operator parent, depressing the valuations of the companies relative to their independent peers. That being said, Vodafone’s Vantage Towers is trading at a multiple only slightly lower than Cellnex (23.2x vs 25.4x), demonstrating that if the contracts and independent governance are structured more in line with independent towerco standards, the market will recognise this.
The terms of the proposed MSAs between Sitios Latinoamérica and América Móvil are yet to be disclosed, although América Móvil’s comment about “market terms available to other telecommunications operators” suggests they are leaning towards independent towerco market standards.
There are no pureplay Central & Latin American listed independent towercos with which Sitios Latinoamérica can be compared. Both American Tower and SBA Communications (who trade at multiples north of 30x) have a significant presence in CALA, but also have a significant presence in the highly attractive US towerco market – and in the case of American Tower, across Europe, Africa and India (with SBA also having a presence in South Africa, and soon – Tanzania).
The two towercos also enjoy REIT status. Sitios Latinoamérica will not reach the 30x valuation of its US peers, nor is it likely to hit the mid-20s multiple of Europe’s multi-country players. As a developing market towerco, Helios Towers - which trades as 13.5x - could perhaps offer a closer benchmark, but as fully independent player and marked differences between dynamics in Africa and CALA the comparisons are flimsy at best.
América Móvil hopes to complete the reorganisation of its tower business before the end of the year, at which time a clearer picture will emerge as to how the newly formed company will place.
Figure 4 - Listed towercos and their EV to EBITDA multiples (Source: MoffettNathanson)
European towers: A note on América Móvil’s investment in Telekom Austria
América Móvil owns a majority stake in European operator, Telekom Austria. Telekom Austria has a presence in seven European markets, namely Austria, Belarus, Bulgaria, Croatia, North Macedonia, Serbia and Slovenia, where it collectively owns a portfolio of 16,000 sites.
Telekom Austria stated in their Q320 results that they were “working on development of alternatives that would allow us to reap more benefits from tower assets through a targeted management focus on internal efficiencies and higher tenancy ratios” implying that the operator was pursuing a similar strategy to América Móvil -forming a towerco.
Further details are yet to be announced but in recent months there has been a swathe of towerco carve outs by Europe’s MNOs with Vodafone forming Vantage Towers, Orange forming TOTEM, Telenor forming Telenor Tower Holding, Telia forming Telia Towers and Deutsche Telekom forming an Austrian towerco to join their German one (Deutsche Funkturm).
The formation of a towerco by Telekom Austria would be very much in line with the strategies of both its principal shareholder and many of its European peers.
