Sri Lanka's Dialog Axiata recently retained its Fitch-assigned national long term rating at "AAA(lka)" with stable outlook. Additionally, its cumulative redeemable preference shares were also maintained at "AA+(lka)."
According to an accompanying Rating Action and Commentary (RAC) issued by Fitch, these ratings were a result of "support from its 83% shareholder Axiata Group Berhad (Axiata), underpinned by the latter's board representation in Dialog, a common brand, and the integration of strategic and some operational functions between the two companies. Axiata has provided tangible support to Dialog throughout its history, most recently in the form of shareholder loan and a corporate guarantee on a long-term offshore bank credit line."
Further suggested by the RAC, "Dialog's 'AAA(lka)' rating may face downward pressure if Axiata's perceived willingness to support diminishes, evidence of which would include a considerable dilution in its ownership stake or control, or a material reduction in other operational and strategic ties." However, also opined was that the "removal of Axiata's corporate guarantee on the offshore bank line or the repayment of the shareholder loan will not by themselves result in a downgrade."
At the same time, the RAC also revealed that the mobile operator had a "standalone profile at 'AA(lka)', underpinned by its leading market share in the local mobile industry (38% share at end-June 2011), growing diversity in revenues, comfortable operating profit margins, and continuous investments to maintain its technological edge."
The RAC also highlighted that "Dialog's revenue and [Earnings Before Interest, Taxation. Depreciation and Ammortisation, EBITDA] growth slowed in [the first half of 2011, H111] to 9% and 2% respectively, largely on account of tariff adjustments within the mobile segment in [the first quarter of 2011] (66% of group revenue)." However, it was further predicted that revenues would "rebound in H211, as increased demand should more than compensate for lower tariffs."
It was also Fitch's expectation that the mobile operator would "generate positive free cash flow (FCF, after deducting capex and dividends) over the medium term, helped by strong operating cash flow generation and selective capital expenditure."
Also emerging, "Dialog's liquidity was comfortable at end-H111, with cash reserves of Rs. 8.4 billion and committed unutilised credit lines of around Rs. 6 billion, compared with current maturities of Rs. 9.8 billion. At end-H111, the share of group debtdenominated in US$ stood at 65%. However foreign currency risk was limited by a natural hedge in the form of approximately US$ 50 million of annual net operating income and US$ cash reserves of US$ 10 million at end-H111." (JH) |
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