Fitch affirms Sri Lanka’s Dialog Axiata at ‘AAA(lka)’/Stable | Sunday Observer

Fitch affirms Sri Lanka’s Dialog Axiata at ‘AAA(lka)’/Stable

Fitch Ratings has affirmed the National Long-Term Rating of Sri Lanka-based telecoms company Dialog Axiata PLC at ‘AAA(lka)’. The Outlook is Stable.

Dialog’s standalone credit profile of ‘AAA(lka)’ is underpinned by its market leadership in the growing mobile and pay-TV market segments. We believe that Dialog is in a position to gain revenue market share from smaller telcos, given its superior execution and mobile networks.

We believe that Dialog could receive support from its 83%-parent, Axiata Group Berhad (Axiata) of Malaysia, if its standalone credit profile were to weaken.

Under Fitch’s parent-subsidiary linkage criteria, we assess the relationship between Axiata and Dialog as one of a “strong parent, weaker subsidiary and moderate linkages”.

The linkages include sharing key management personnel, a common name and common creditors, which could result in reputational risk to Axiata should Dialog fail. The company has a solid financial profile, with industry-leading revenue growth, a stable operating EBITDAR margin of 37%-38%, and a low Fitch-forecast 2019 FFO adjusted net leverage of around 1.0x (estimated 2018: 1.0x).

We forecast revenue to grow by the high-single-digit percentage (barring any tax shocks) during 2019-2020, driven by data services revenue growth of 30%-35% (2018: 32%).

We forecast Dialog’s operating EBITDAR margin to remain stable, as larger economies of scale in the data segment offset falling profitability in the voice and text segments.

We believe the recently announced merger between Hutchison Telecommunications Lanka (Pvt) Ltd and Etisalat Lanka (Pvt) Ltd is likely to relieve some competitive pressures that have undermined telecom companies’ revenue and EBITDA growth in recent years.

The merger is pending regulatory approval.