Downgraded

Mar 03, 2009 (LBO) – The ‘AAA(lka)’ rating on Sri Lanka’s Dialog Telekom was cut by two notches to ‘AA(lk)’ Fitch Ratings, following price competition which is weakening margins and rising costs, Fitch Ratings said. Dialog’s rating of its outstanding redeemable preference shares reflected the subordinate nature of the instrument.

Though Dialog has started a group-wide cost cutting exercise, through which it expects to improve EBITDA margins in 2009, Fitch says the outlook cut reflects concerns that the firm’s credit profile could further weaken due to price competition.

There was also uncertainty over the extent to which the company’s planned cost rationalizing efforts will be successful.

Profitability as measured by EBITDA margin had fallen to 23% at the end of the 2008 financial year from 43 percent in 2007.

At the end of the 2008 financial year mobile operations accounted for 92 percent of Dialog’s group revenue.

The growth of alternative revenue streams such as fixed wireless, pay TV and broadband have been stifled by inflationary pressures on disposable income and the resulting impact on market penetration and usage levels, as well as competition.

The group’s debt maturities pe