Dialog Axiata rated ‘AAA (lka)'/Stable

Fitch Ratings has affirmed Sri Lanka-based telecom operator Dialog Axiata PLC's (Dialog) National Long-Term rating at ‘AAA (lka)’ with a stable outlook.

The rating factors in support from its 83 %-parent Axiata Group Berhad (Axiata), underpinned by the latter's board control, brand-sharing, and the strategic and some operational integration between the two companies. Axiata has provided tangible support to Dialog throughout its history, most recently in 2009 via a shareholder loan and a corporate guarantee on a long-term offshore bank credit line.

Dialog's standalone credit profile is strong, and has improved between 2010 and 2012, helped by a benign competitive environment and improving usage across most service segments.

Fitch has therefore reassessed Dialog's standalone profile at ‘AA+ (lka)’, up from ‘AA(lka)’ earlier. The agency expects Dialog's standalone profile to continue to improve over the medium term, driven by the company's ability to fund its capex from strong operating cash flows.

Dialog's revenue exposure to the overcrowded domestic mobile telecoms industry has reduced to 54 % at end-June 2012 (H112) from 65 % in 2009. Mobile as a share of revenue is likely to remain at current levels over the long term, aided by potential faster growth in the fixed-line and television segments.

Fitch expects subscriber acquisition and retention costs to remain high, exerting moderate pressure on EBITDAR margins, as the country's five telecom operators compete for a larger share of Sri Lanka's 21 million population. Over the longer-term, consolidation among mobile operators will be positive for the industry.

Dialog's liquidity is strong in both local and foreign currency, with sufficient available cash balances and free cash flows (FCF, defined as cash from operations less dividends and capex) to cover upcoming debt maturities.

The company's annual USD-denominated operating cash flows of approximately US $ 50 m are sufficient to cover repayments on its US $ debt through to 2016. At end-2011 67 % of Dialog group debt was denominated in US $.

Dialog is Sri Lanka's largest mobile telecom operator with a subscriber market share of approximately 39 % at end-H112. As the incumbent 2G and 3G mobile operator in the country, its revenue market share is higher than its peers. Apart from mobile, Dialog also provides fixed- line and pay TV services.