 Return to LNP
|
|
Fitch assigns `AAA` rating to Dialog Telekom
Tuesday, 4 October 2005 - 2:58 AM SL Time
|
|
|
Fitch Ratings Lanka Ltd said yesterday assigned Dialog Telekom Ltd., (Dialog) a Senior Unsecured Long-term rating of `AAA (sri)`.
The Rating Outlook is Stable.
AAA (sri) credit ratings denote the lowest expectation of credit risk. This rating is assigned only in the case of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.
Dialog`s rating reflects its position as Sri Lanka`s leading mobile operator (with c.60% market share as at end-1H05) with strong brand recognition and, as well as its robust operating performance, sound margins, strong cash generation and adequate liquidity.
The strong track record of the key management and operational (and if necessary financial) benefits derived from its strong dominant parent, Telekom Malaysia Berhad ('TM', rated `A-` internationally by Fitch) are considered positively.
The rating also takes into account credit concerns such as the evolving regulatory framework, the intensifying competitive environment and a substantial increase in capex leading to negative free-cash flow generation (after dividends and capex) in the short-term.
Despite being the last of the four mobile operators to commence operations, Dialog has rapidly gained market share by successfully executing a strategy of launching operations with strong initial geographic coverage, effective branding and innovative product offerings. Its decision to commence operations with a GSM network (when all other operators were on analog systems), low fixed-line penetration and a relatively benign competitive environment - till recently, also helped the company to consolidate its position in the market. Although, the blended ARPU of Dialog has been declining as a result of the high take-off of pre-paid services (with low ARPU), the company thus far has managed to maintain, if not improve, ARPUs in both pre- and post-paid segments with innovative value-added services and attractive tariff plans. The growth potential in the mobile telephony sector remains robust with mobile and fixed-line penetration still low at c.12% and 5% respectively.
However, the competition among the operators has intensified with the rival mobile operators having migrated to GSM operations and somewhat aggressive tariff based competition. In addition, the recent launch of wireless services based on CDMA technology by the fixed-wireless operators will add pressure. The possible future regulatory determinations such as CPP, unified licensing and mandatory sharing of certain telecom infrastructure could create a more competitive environment overall.
International operations are increasingly adding to Dialog`s operating performance. These include its external gateway operations and international voice termination revenues (since 2003) and leasing of international bandwidth to other operators and bulk-users. Revenue from ILD services is yet modest, but improving. International roaming accounts for c.18% of Dialog`s voice revenues and is expected to register robust growth. Owing to high capex, Dialog was free-cash flow negative till FY04 (free-cash flow generation in FY04 was LKR2.0bn). However, its key credit metrics have improved over the years with strong cash flow generation from its growing operations and size-related economies, and are currently strong for its rating as reflected by debt to total capitalisation of 37%, Gross debt to EBITDA of 0.6(x) and EBITDA to gross interest of 17(x) as at FYE04. The company would be free-cash flow negative in FY05 owing to a spike in capital expenditure. However, strong free-cash flow generation is expected once capex moderates after 2006. Although high, the dividend payments (of 40-60% of post-tax profits) appear manageable during this period of heavy investment outlay without much deterioration of the credit profile. Its liquidity position is also backed by adequate committed undrawn credit facilities and vendor financing available on telecom equipment purchases.The Stable Outlook reflects the agency`s belief that Dialog will continue to retain its pre-eminent market position (although some erosion in market share is likely in the medium-term) in the country`s growing mobile space. FRL also expects the company to maintain a robust financial profile, notwithstanding the increased capital expenditure, somewhat high dividend payouts and intensifying competition. A detailed credit analysis report is available on our free-of-charge website www.fitchratings.lk. Please register to obtain a copy.
FRL`s rating definitions, published ratings, criteria and methodologies and relevant policies and procedures are available on this website. FRL is a joint venture between Fitch Ratings, USA, International Finance Corporation Washington, Central Bank of Sri Lanka and several other leading local financial institutions. Fitch Ratings, USA is one of the three global full service credit rating agencies and rates over 85 sovereign nations, 8,000 structured finance ratings, 3,100 international banks and financial institutions and 1,300 Corporates.
|
|
|
|
