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(Bloomberg) -- Telefonica Moviles Chile SA’s dollar bonds tumbled to the lowest in just over a year last week as fierce competition in the mobile phone market pushed up losses and the parent company unloads assets across Latin America.
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The company’s notes due 2031 have dropped 7.2 cents on the dollar since August to 74.5 cents, the lowest since February 2024. In just the last month, the bonds have tumbled 2.5 cents, one of the worst performances among Chilean hard-currency debt.
The Chilean unit of Spain’s Telefonica SA is the latest victim of cut-throat competition in Chile’s mobile phone market, which pushed rival WOM into Chapter 11 bankruptcy proceedings last year. The extent of Telefonica Chile’s troubles became apparent on Feb. 27, when it reported a loss of $446.6 million for last year, a six-fold increase on 2023. Now, investors are questioning Telefonica’s commitment to Chile as it sell assets in Argentina and Colombia.
“When we add the exit of Telefonica from the region, plus the poor performance of Telefonica Chile in recent years, it makes sense that the bonds are starting to reflect what’s happening more grimly,” said Juan Djivelekian, an analyst at Balanz Capital Valores.
Revenue from Telefonica Chile’s mobile services, its main business, slid 7.4% in 2024 as tough pricing competition in the industry prompted a drop in client numbers.
Movistar, as their mobile phone service is known, saw its market share dip to 23.7% in the 12 months through September from 26.9% the year before, according to the latest data collected by the regulator.
In response, Telefonica Chile has cut operating costs to improve margins in the past year, according to a person with knowledge of the company, who asked not to be named. Regulatory changes should also ease competitive pressures in the industry, the person said.
Rock Bottom
For now, the company response hasn’t convinced investors. In the last month, Telefonica Chile’s dollar bonds have handed them a 4.76% loss. Only WOM’s bonds did worse.
The company’s dollar bonds now have a spread of more than 250 basis points over competitor Empresa Nacional de Telecomunicaciones SA’s notes, a record high. Their spread to US Treasuries is also at their peak.
Last year’s losses and the decline of market share led S&P Global Ratings to downgrade Telefonica Chile to junk in October, while Fitch Ratings lowered its outlook to negative in September. Should Fitch now cut one notch to junk, Telefonica Chile becomes a fallen angel.