Benign competition, more usage up Dialog’s credit : Fitch
View(s):The standalone credit profile for top Sri Lankan telco Dialog has improved between 2010 and 2012, driven by a benign competitive environment and improved usage across most service segments, according to ratings agency Fitch.
This was revealed as part of Fitch’s recent announcement that it had upgraded Dialog’s standalone credit profile to “AA+(lka)”, from its previous “AA(lka)”. Fitch also noted that it upheld Dialog’s national long-term rating at “AAA(lka)”, with a stable outlook. Fitch also added that it “expects Dialog’s standalone profile to continue to improve over the medium term, driven by the company’s ability to fund its capex from strong operating cash flows”.
Further, Fitch also indicated that the “AAA(lka)” rating also “factors in support from its 83 per cent-parent Axiata Group Berhad (Axiata), underpinned by the latter’s board control, brand-sharing, and the strategic and some operational integration between the two companies. Axiata has provided tangible support to Dialog throughout its history, most recently in 2009 via a shareholder loan and a corporate guarantee on a long-term offshore bank credit line”.
In addition, Fitch suggested that, while Dialog’s local rating was presently at its highest level, and, as such, there was no scope for further improvement in terms of ratings, a ratings drop could potentially result from a “material dilution in Axiata Berhad’s ownership or board control in Dialog, removal of the common brand name, or a weakening of the current strategic and operational ties between the companies”.
Also emerging; “Dialog’s revenue exposure to the overcrowded domestic mobile telecoms industry has reduced to 54% at end-June 2012 (H112) from 65% in 2009. Mobile as a share of revenue is likely to remain at current levels over the long term, aided by potential faster growth in the fixed-line and television segments. Fitch expects subscriber acquisition and retention costs to remain high, exerting moderate pressure on EBITDAR margins”. (JH)
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