Dialog Telekom unlocks dollars to expand network

Triple A rated Dialog Telekom plans to drawdown part of its dollar credit facilities to rollout a Rs. 25 billion expansion plan over the next two-years. Triple A rated Dialog Telekom plans to drawdown part of its dollar credit facilities to rollout a Rs. 25 billion expansion plan over the next two-years. Sri Lanka’s largest mobile phone operator, will spend about Rs. 10 billion during the financial year 2005 to set up a back-up infrastructure facility for its disaster relief programme and upgrade its billing system, Fitch Ratings Lanka made its comments in a report on Dialog’s credit rating issued on Monday.

Dialog’s AAA (sri) rating reflects its 60 percent market share of Sri Lanka’s mobile landscape, with strong brand recognition and, robust operating performance, sound margins, strong cash generation and adequate liquidity.

Fitch says the spending spree will be partly funded through a mix of operating cashflows, vendor financing, proceeds from the recent public issue and unlocking parts of a US dollar credit facility.

Fitch says around US$ 35 million is available to Dialog after drawing down US$ 15 million in August this year to fund its capital expansion plans.

While, debt maturities in 2005 are modest, about 65 percent of Dialog’s debt is due to mature in 2006. However, Fitch says, liquidity would remain sound with strong operating cashflows, vendor financing on capital expenditure and unutilised credit lines.

With over 1.7 million subscribers, Dialog is also aiming to get islandwide footprint within two years.

Dialog’s churn rates or the number of people leaving the network, have come down to six percent last year from a high of 11 percent in 2002 as it steps up its customer loyalty retention programmes.

Fitch however, was concerned over Dialog’s high dividend payout (about 40-60 percent of post-tax profits).

In the past, Dialog’s dividend payments on its ordinary shares had been ranging from 15-20 percent, with the exception of 2004, in which it was 67 percent.

In addition, dividends were paid (at 8.5 percent p.a.) on preference shares of Rs. 1.27 billion owned by Telekom Malaysia, which were converted into ordinary share before the IPO in July 2005.

Although high, Fitch says the dividend payments appear manageable during this period of heavy investments and the agency expects Dialog to maintain a robust financial profile.

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.

Despite a host of value added services, Dialog generates nearly 80 percent of its revenue from pre-paid segments – a common trend among all operators. International voice traffic also brings in a steady cashpile.

Sri Lanka was the first to introduce mobile phones nearly 16 years ago, when waiting lists for telephones stretched as long as 10-15 years.

Since then, cellular sector has been a winner with the number of new connections jumping 50 percent to 2.7 million subscribers, for the first six months of this year, according to Central Bank data.

Fitch says the growth potential is still there, with mobile and fixedline penetration low at about 12 percent and five percent respectively.

-LBO Newsdesk: LBOEmail@vanguardlk.com

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