SLT-Mobitel’s mobile towers tax could be Rs.3 bln: Fitch
View(s):Sri Lanka Telecom (SLT)’s additional payment of Rs. 3 billion as the mobile towers tax of Rs. 200,000 per tower, announced in the 2018 Budget, is unlikely to impact on its rating, according to Fitch Ratings.
While SLT’s fully owned subsidiary, Mobitel (Pvt) Ltd, owns over 1,500 towers, “We expect SLT’s ratings to remain unaffected, as it has sufficient headroom to absorb the proposed tax. However, Fitch has not factored in the impact of the tower tax in its base case, as the budget proposal has not been finalised,” the rating agency said this week.
It has assigned SLT (SLT, AAA (lka)/Stable) proposed senior unsecured debenture issue of up to Rs. 7 billion an expected National Long-Term Rating of ‘AAA(lka)(EXP)’.
The release said SLT will have a free cash flow (FCF) deficit during 2017-2020 (2017 forecast: Rs. 7 billion deficit), as cash flow from operations could fall short in funding large capital expenditure plans to expand the group’s optical fibre infrastructure and 3G/4G mobile networks.
It said SLT’s 2017 capital costs would reach about Rs. 25 billion, or 34 per cent of revenue, before moderating to Rs. 20 billion-23 billion per year. SLT’s fibre investments are likely to have low returns due to the country’s low broadband tariffs.
“SLT’s ratings are underpinned by its market-leading position in fixed-line services and second-largest position in mobile, along with its ownership of an extensive optical fibre network. The company’s stable cash generation benefits from its diversified service offerings, including fixed-voice, broadband, mobile, pay-TV, enterprise and international operations. We believe SLT’s market position will strengthen, as it plans to expand its mobile and fibre infrastructure,” Fitch said.
While SLT’s liquidity was inadequate as at end-September 2017, with cash of Rs. 6 billion and committed undrawn bank lines of Rs. 10 billion being insufficient to fund short-term debt of Rs.26 billion and the annual FCF deficit of around Rs. 7 billion, Fitch noted that it however expected “ SLT to comfortably refinance its short-term debt, as the company has a demonstrated record of accessing capital from local banks and capital markets”.