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Corporates
Telecommunications / Sri Lanka
Dialog Axiata PLC
24 May 2018 1
Dialog Axiata PLC
Rating Type Rating Outlook Last Rating Action
National Long-Term Rating AAA(lka) Stable Affirmed 04 April 2018
Click here for full list of ratings
Financial Summary
(LKRm) Dec 2016 Dec 2017 Dec 2018F Dec 2019F
Gross Revenue 86,745 94,169 102,229 112,255
Operating EBITDAR Margin (%) 35.4 37.8 37.3 36.9
FFO Margin (%) 31.2 33.7 32.0 31.2
FFO Fixed Charge Coverage (x) 9.3 10.1 9.0 8.5
FFO Adjusted Net Leverage (x) 1.2 1.1 1.2 1.1
Source: Fitch
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Key Rating Drivers
Market-Leading Position: Dialog Axiata PLC's standalone credit profile of 'AAA(lka)' is underpinned by its market
leadership in the growing mobile and pay-TV industry segments in Sri Lanka. We believe Dialog is in a position to gain
revenue market share from smaller telcos with its superior 3G/4G networks. It has a solid financial profile with revenue
growth of 8%-9%, stable operating EBITDAR margin of 35%-37%, and Fitch Ratings has forecast a low FFO-adjusted net
leverage of 1.2x for 2018.
High Ratings Headroom: We believe Dialog would receive support from its 83%-parent, Axiata Group Berhad (Axiata) of
Malaysia, if its standalone credit profile were to weaken. Dialog and its parent continue to have moderate linkages, which
include sharing key management personnel, a common name and common creditors, which could result in reputational
risk to Axiata should Dialog fail.
Unaffected by CTF’s Acquisition: Dialog's rating is unaffected by the LKR1.3 billion acquisition of Colombo Trust
Finance PLC (CTF), a small non-bank financial institution, completed in November 2017. Dialog is likely to use CTF to
expand its digital financial services strategy and supplement its payment settlement platform. It will likely inject LKR2.1
billion of equity in CTF over 2018-2020 to meet minimum regulatory capital requirements of LKR2.5 billion by January
2021. We believe that CTF's capital structure is likely to be strong enough and will not be a cash drain on Dialog during
2018-2021. We have fully deconsolidated CTF's debt (mainly deposits) and EBITDA from Dialog in our analysis.
Proposed Taxes Credit Negative: Fitch believes that Dialog's operating EBITDAR margin could narrow to 31%-33%
(2017: 38%) and its FFO adjusted net leverage could deteriorate to 1.4x-1.6x (2017: 1.1x) if it were to pay an additional
LKR4 billion-6 billion in taxes for its mobile towers, as proposed by the government. However, we believe there is a high
level of uncertainty about the implementation of the taxes and we have not therefore factored these into our base case.
Nevertheless, we would expect Dialog's ratings to remain unaffected, even if the taxes were implemented, given the high
ratings headroom.
The Sri Lankan government's 2018 budget, announced on 9 November 2017, proposes to tax mobile operators
LKR200,000 per tower each month.
Corporates
Telecommunications / Sri Lanka
Dialog Axiata PLC
24 May 2018 2
High-Single-Digit Revenue Growth: We expect Dialog's revenue to grow by 8%-10% (2017: 8.6%) during 2018-2019,
driven by data services revenue growth of 30%-35% (2017: 39%) and supported by the removal of the 25% telco levy on
data services in September 2017. We believe that data services' revenue contribution to consolidated revenue will rise to
over 25% in 2018 (2017: 21%).
Stable Profitability: Excluding the proposed tower taxes, we forecast Dialog's operating EBITDAR margin to remain
stable at 35%-37% as larger economies of scale in the data segment will offset falling profitability from the voice and text
segments. Strong data growth is supported by the proliferation of smartphones, with over half of new smartphones
activated on Dialog's network being 4G-enabled.
Negative FCF on Large Capex: We forecast Dialog to have negative free cash flow during 2018-2019 as cash flow from
operations will fall short of Dialog's large, ongoing capex plan and dividend commitments. Dialog will continue to invest
about 28%-30% of its revenue in capex each year to expand its 4G networks and its optical fibre infrastructure. We
expect annual dividends to increase to around LKR3.7 billion-4.3 billion (2017: LKR3.2 billion) during 2018-2019.
Consolidation to Relieve Competition: 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 telcos' revenue and EBITDA growth in recent years. The long-overdue industry consolidation is likely to
provide some relief from pricing pressure, especially in the data segment, where telcos have not been able to fully
capture the strong growth in data traffic.
Ratings Headroom for M&A: Dialog's ratings have sufficient headroom for the company to undertake a debt-funded
acquisition of remaining smaller operator Bharti Airtel Limited's (BBB-/Stable) Sri Lankan subsidiary, Airtel Lanka.
However, any rating action will be based on the acquisition price, funding structure, and the financial and operating profile
of the combined entity.
Rating Derivation Relative to Peers
Rating Derivation versus Peers
Peer Comparison Dialog's business risk profile is stronger than that of similarly rated national peers, given its market-leading position in Sri Lanka's mobile industry, stable cash generation, and integrated service offerings. Dialog has a larger revenue base and better operating EBITDAR margin than the fixed-line market leader, SLT, but this is offset by Dialog's higher exposure to the crowded mobile market. Dialog has a larger operating scale compared with hard-liquor market leader Distilleries Company of Sri Lanka PLC (DIST, AAA(lka)/Rating Watch Negative), given the fragmented nature of the alcoholic beverage industry. DIST is also exposed to more regulatory risk in the form of recurrent increases in indirect taxation, but these risks are counterbalanced by its substantially stronger FCF. Dialog has a larger operating scale and a wider operating EBITDAR margin than Hemas Holdings PLC (AA-(lka)/Stable), which is a diversified conglomerate with exposure to pharmaceuticals, fast-moving consumer goods, leisure and transport. Hemas is the largest private pharmaceuticals distributor in the country and second-largest home care and personal care manufacturer. Hemas's FFO adjusted net leverage is likely to be similar to that of Dialog over the medium term.
Parent/Subsidiary Linkage The relationship between Axiata and Dialog is one of a ‘strong parent, weaker subsidiary and moderate linkages’. We believe that if Dialog’s standalone credit profile were to weaken, it would receive parental support given moderate linkages between the two entities. The operational linkage includes shared key management personnel, corporate name and creditors, which could inflict reputational risk on Axiata should Dialog fail.
Country Ceiling No Country Ceiling constraint was in effect for these ratings.
Operating Environment No Operating Environment influence was in effect for these ratings.
Other Factors Not applicable
Source: Fitch
Corporates
Telecommunications / Sri Lanka
Dialog Axiata PLC
24 May 2018 3
Rating Sensitivities
Future Developments That May, Individually or Collectively, Lead to Positive Rating Action
– There is no scope for an upgrade as Dialog is at the highest rating on the Sri Lankan National Ratings scale.
Future Developments That May, Individually or Collectively, Lead to Negative Rating Action
– FFO-adjusted net leverage above 3.5x, provided there is no further strengthening of rating linkages with the parent,
Axiata.
Liquidity and Debt Structure
Solid Liquidity: At end-2017, Dialog had sufficient unrestricted cash balance of LKR5 billion and undrawn committed
bank facilities of LKR14 billion to pay for its short-term debt maturities of about LKR6 billion. Dialog has strong access to
local banks, being among the largest corporates in Sri Lanka. Debt consists mainly of a USD149 million syndicated facility
and LKR10 billion bank loan.
Corporates
Telecommunications / Sri Lanka
Dialog Axiata PLC
24 May 2018 4
Debt Maturities and Liquidity at end-2017
Liquidity Summary Original Original
31 December 2016 31 December 2017
(LKRm)
Total Cash & Cash Equivalentsª 6,410 5,043
Short-Term Investments
Less: Not Readily Available Cash and Cash Equivalents -868 -488
Fitch-defined Readily Available Cash and Cash Equivalents 5,542 4,555
Availability under Committed Lines of Credit due 2022 19,461 13,596
Total Liquidity 25,003 18,151
Plus: Fitch Forecasted 2018 FCF (post dividend) -1,149
Total Projected 2018 Liquidity 17,002
Liquidity Score 2.6
LTM EBITDA 29,208 33,857
LTM Free Cash Flow -7,841 2,151
ª Total cash balance net of bank overdraft
Source: Fitch Ratings, Inc., Company filings
Scheduled Debt Maturitiesb Original
(LKRm) 31 December 2017
31 December 2018 5,799
31 December 2019 0
31 December 2020 5,452
31 December 2021 11,810
31 December 2022 8,060
Thereafter 1,702
Total Debt Maturities 32,824
b As per the latest maturities provided by the company; excludes bank overdraft
Source: Fitch Ratings, Inc., Company filings
Corporates
Telecommunications / Sri Lanka
Dialog Axiata PLC
24 May 2018 5
Key Rating Issues
Proposed Telecom Tower Tax Could Cut Margins, But Unlikely to be Implemented
The government’s proposal to tax mobile operators LKR200,000 per tower each month, if implemented, would lead to
Dialog having to pay an additional LKR4 billion-6 billion tax. As a result, Dialog’s operating EBITDAR margin could narrow
to 31%-33% (2017: 38%) and its FFO-adjusted net leverage could deteriorate to 1.4x-1.6x (2017: 1.1x).
However, we have not factored the taxes in our base case given we believe there is a high level of uncertainty about
implementation, as the government has a poor track record of implementing such extreme taxes. Nevertheless, we would
expect Dialog's ratings to remain unaffected, even if the taxes were implemented, given the high ratings headroom.
Revenue Growth Driven By Data; Stable Profitability
Fitch's forecast for Dialog's revenue to increase by 8%-9% in 2018-2019 is based on our expectation that its voice
revenue will be flat over the forecast period on account of high taxes. Consumers are likely to switch to over-the-top
(OTT) services from traditional voice and text services due to lower effective taxes on data services of 20% compared
with 50% for voice and text services. Strong growth in data service revenue will be supported by the proliferation of
smartphones, with over half of new smartphones activated on Dialog's network being 4G-enabled. Also, international
termination revenue is likely to decline due to cheaper OTT applications.
Growth in data services will also help maintain operating EBITDAR margin in the 35%-37% range as the company reaps
economies of scale, which will offset the shrinking profitability from the voice and text segments. Operating EBITDAR
margin rose to 37.8% in 2017 (2016: 35.4%) mainly due to improving profitability on data services on rising usage.
Simplification of customer front-end systems and digitalisation of processes have yielded efficiencies, according to
management. Dialog’s data costs also improved from mid-2016 as it moved away from SLT’s SEA-ME-WE submarine
cable to its own Bay of Bengal cable for international connectivity. Network costs also improved considerably as cheap
fibre replaced microwaves as a mode of backhauling.
Dialog is the largest pay-TV operator in Sri Lanka and revenue from this segment contracted 1% in 2017 (5% growth in
2016) due to higher indirect taxes and resulting affordability pressures, despite a 17% growth in subscribers.
CTF Acquisition Unlikely to Impact Leverage
Dialog expects to use the recently acquired CTF to provide financing to Dialog’s existing customers and complement
Dialog’s ‘ezcash’ payment settlement platform, which enables customers to top-up their accounts and transfer money to
other accounts, make bill payments as well as pay merchants. In addition, the non-bank financial institution license that
comes with the CTF acquisition will allow Dialog to solicit savings deposits. Dialog expects to launch new lending
products via CTF in 2H18.
Dialog will be required to inject equity of LKR1.05 billion to CTF in 2018 and a further LKR500 million annually during
2019-2020 to meet an enhanced regulatory minimum capital requirement of LKR2.5 billion by 1 January 2021. CTF’s
equity stood at LKR449 million at end-2017. We believe these capital infusions would make CTF's capital structure strong
enough to prevent it from becoming a cash drain on Dialog over 2018-2019. As such we have fully deconsolidated CTF’s
debt (which is mainly in the form of deposits) and EBITDA from Dialog in our analysis.
Industry Consolidation Could Improve Pricing
We believe the merger between Hutchison Telecommunications Lanka (Private) Ltd and Etisalat Lanka (Private) Ltd is
likely to relieve some competitive pressures that have undermined Sri Lankan telecom companies' revenue and EBITDA
growth in recent years. The long-overdue industry consolidation, announced on 26 April 2018, is likely to provide some
Corporates
Telecommunications / Sri Lanka
Dialog Axiata PLC
24 May 2018 6
relief from pricing pressure, especially in the data segment, where telcos have not been able to fully capture the strong
growth in data traffic. We do not foresee the Hutchison-Etisalat merged entity threatening more price competition or
taking significant market share from Dialog and SLT in the short to medium term as each have struggled to make
meaningful EBITDA profits and have high capex requirements.
Key Assumptions
Fitch's key assumptions within our rating case for the issuer include:
– High-single-digit revenue growth during 2018-2019 (2017: 8.6%).
– Operating EBITDAR margin to remain stable at 35%- 37% during 2018-2019 (2017:37.8%).
– Capex/revenue to remain high at 28%-30% (2017: 32%).
– Dividend pay-out to increase to LKR3.7 billion-4.3 billion a year during 2018-2019 (2017: LKR3.2 billion)
– Proposed mobile tower taxes are not implemented.
– Deconsolidated CTF's financials from Dialog.
Corporates
Telecommunications / Sri Lanka
Dialog Axiata PLC
24 May 2018 7
Financial Data
(LKRm) Historical Forecast
Dec 2015 Dec 2016 Dec 2017 Dec 2018F Dec 2019F Dec 2020F
SUMMARY INCOME STATEMENT
Gross Revenue 73,930 86,745 94,169 102,229 112,255 122,273
Revenue Growth (%) 9.9 17.3 8.6 8.6 9.8 8.9
Operating EBITDA (Before Income From Associates)
23,752 29,208 33,857 36,291 39,289 42,184
Operating EBITDA Margin (%) 32.1 33.7 36.0 35.5 35.0 34.5
Operating EBITDAR 25,114 30,734 35,557 38,159 41,392 44,538
Operating EBITDAR Margin (%)
34.0 35.4 37.8 37.3 36.9 36.4
Operating EBIT 9,497 12,915 14,803 15,600 16,719 17,766
Operating EBIT Margin (%) 12.8 14.9 15.7 15.3 14.9 14.5
Gross Interest Expense -823 -1,440 -1,658 -2,156 -2,487 -2,747
Pretax Income (Including Associate Income/Loss)
6,705 10,544 12,435 14,074 14,739 15,581
SUMMARY BALANCE SHEET
Readily Available Cash and Equivalents
6,255 7,177 7,883 6,331 7,019 7,826
Total Debt With Equity Credit 25,407 34,186 36,595 37,356 39,356 40,870
Total Adjusted Debt with Equity Credit
33,579 43,342 46,795 48,563 51,971 54,994
Net Debt 19,152 27,009 28,713 31,025 32,337 33,044
SUMMARY CASH FLOW STATEMENT
Operating EBITDA 23,752 29,208 33,857 36,291 39,289 42,184
Cash Interest Paid -816 -1,688 -1,740 -2,156 -2,487 -2,747
Cash Tax -3,079 -1,499 -1,635 -2,045 -2,245 -2,445
Other Items Before FFO 514 652 975 0 0 0
Funds Flow From Operations 20,838 27,054 31,710 32,722 35,064 37,553
Change in Working Capital 575 -3,965 3,976 564 1,041 1,040
Cash Flow From Operations (Fitch Defined)
21,413 23,089 35,687 33,286 36,105 38,594
Total Non-Operating/Non-Recurring Cash Flow
0 0 0
Capital Expenditure -16,549 -28,324 -30,360
Capital Intensity (Capex/Revenue)
22.4 32.7 32.2
Common Dividends -1,059 -2,606 -3,176
Free Cash Flow 3,806 -7,841 2,151
Net Acquisitions and Divestitures
-217 0 -1,245
Other Investing and Financing Cash Flow Items
161 48 -188 -112 -100 -100
Net Debt Proceeds -7,596 8,685 -12 760 2,000 1,514
Corporates
Telecommunications / Sri Lanka
Dialog Axiata PLC
24 May 2018 8
Net Equity Proceeds 0 30 0 0 0 0
Total Change in Cash -3,846 922 706 -1,551 688 807
ADDITIONAL CASH FLOW MEASURES
FFO Margin (%) 28.2 31.2 33.7 32.0 31.2 30.7
Calculations for Forecast Publication
Capex, Dividends, Acquisitions and Other Items Before FCF
-17,825 -30,930 -34,781 -35,486 -37,318 -39,201
Free Cash Flow After Acquisitions and Divestitures
3,589 -7,841 905 -2,199 -1,212 -607
Free Cash Flow Margin (After Net Acquisitions) (%)
4.9 -9.0 1.0 -2.2 -1.1 -0.5
COVERAGE RATIOS
FFO Interest Coverage (x) 26.0 16.8 19.1 15.9 14.9 14.5
FFO Fixed Charge Coverage (x)
10.4 9.3 10.1 9.0 8.5 8.3
Operating EBITDAR/Interest Paid + Rents (x)
11.5 9.6 10.3 9.5 9.0 8.7
Operating EBITDA/Interest Paid (x)
29.1 17.3 19.5 16.8 15.8 15.4
LEVERAGES RATIOS
Total Adjusted Debt/Operating EBITDAR (x)
1.3 1.4 1.3 1.3 1.3 1.2
Total Adjusted Net Debt/Operating EBITDAR (x)
1.1 1.2 1.1 1.1 1.1 1.1
Total Debt with Equity Credit/Operating EBITDA (x)
1.1 1.2 1.1 1.0 1.0 1.0
FFO Adjusted Leverage (x) 1.5 1.5 1.3 1.3 1.3 1.3
FFO Adjusted Net Leverage (x)
1.2 1.2 1.1 1.2 1.1 1.1
How to Interpret the Forecast Presented
The forecast presented is based on the agency’s internally produced, conservative rating case forecast. It does not represent the forecast of the rated issuer. The forecast set out above is only one component used by Fitch to assign a rating or determine a rating outlook, and the information in the forecast reflects material but not exhaustive elements of Fitch’s rating assumptions for the issuer’s financial performance. As such, it cannot be used to establish a rating, and it should not be relied on for that purpose. Fitch’s forecasts are constructed using a proprietary internal forecasting tool, which employs Fitch’s own assumptions on operating and financial performance that may not reflect the assumptions that you would make. Fitch’s own definitions of financial terms such as EBITDA, debt or free cash flow may differ from your own such definitions. Fitch may be granted access, from time to time, to confidential information on certain elements of the issuer’s forward planning. Certain elements of such information may be omitted from this forecast, even where they are included in Fitch’s own internal deliberations, where Fitch, at its sole discretion, considers the data may be potentially sensitive in a commercial, legal or regulatory context. The forecast (as with the entirety of this report) is produced strictly subject to the disclaimers set out at the end of this report. Fitch may update the forecast in future reports but assumes no responsibility to do so.
Corporates
Telecommunications / Sri Lanka
Dialog Axiata PLC
24 May 2018 9
Dialog Axiata PLC
EBITDAa - LKR27,001m
USD149m 1st Lien Secured Term Loan due 2023
LKR10,000m 1st Lien Secured Term Loan due 2021
Telecard (Private) Limited
Communiq Broadband
Network (Private) Limited
Digital Health (Private) Limited70% Digital Commerce Lanka
(Private) Limited
Dialog Axiata Digital Innovation
Fund (Private) Limited
25%
Headstart (Private) Ltd50.59%
Dialog Broadband
Networks (Pvt) Ltd
EBITDAa - LKR6,930m
Dialog Television (Pvt) Ltd
EBITDAa - LKR572m
Digital Holdings Lanka
(Private) Limited
Dialog Device Trading
(Private) Limited
Dialog Business Services
(Private) Limited
Colombo Trust Finance
PLC
98.87%
a EBITDA based on company presentations
Source: Fitch, Company, As at 31 December 2017
Simplified Group Structure Diagram
Corporates
Telecommunications / Sri Lanka
Dialog Axiata PLC
24 May 2018 10
Peer Financial Summary
Company Date Rating
Gross Revenue (LKRm)
Operating EBITDAR
Margin (%) FFO Margin
(%)
FFO Fixed Charge
Coverage (x)
FFO Adjusted Net Leverage
(x)
Dialog Axiata PLC 2017 AAA(lka)/Stable 94,169 37.8 33.7 10.1 1.1
2016 86,745 35.4 31.2 9.3 1.2
2015 73,930 34.0 28.2 10.4 1.2
Sri Lanka Telecom PLC 2017 AAA(lka)/Stable 75,741 28.1 28.3 7.6 1.7
2016 73,801 27.4 28.2 13.3 1.4
2015 68,022 29.5 29.9 16.1 1.1
Distilleries Company of Sri Lanka PLCª
2017 AAA(lka)/Rating Watch Negative
37,448 31.1 21.4 7.4 1.8
2016 31,809 33.3 21.0 10.8 1.6
2015 27,472 35.7 23.1 8.4 1.4
Hemas Holdings PLC 2017 AA-(lka)/Stable 43,405 13.8 10.6 5.5 -1.0
2016 37,977 13.4 10.6 6.0 -1.1
2015 32,497 11.5 9.6 6.6 0.6
Lion Brewery (Ceylon) PLC 2017 A+(lka)/Negative 9,242 19.5 2.3 0.9 7.9
2016 15,015 33.1 24.2 3.8 2.1
2015 15,855 27.8 20.0 4.8 3.4
ª Financial data for Distilleries Company of Sri Lanka PLC are the consolidated figures of its parent, Melstacorp PLC Source: Fitch
Corporates
Telecommunications / Sri Lanka
Dialog Axiata PLC
24 May 2018 11
Reconciliation of Key Financial Metrics
(LKR Millions, As reported) 31 Dec 2017
Income Statement Summary
Operating EBITDA 33,857
+ Recurring Dividends Paid to Non-controlling Interest 0
+ Recurring Dividends Received from Associates 0
+ Additional Analyst Adjustment for Recurring I/S Minorities and Associates 0
= Operating EBITDA After Associates and Minorities (k) 33,857
+ Operating Lease Expense Treated as Capitalised (h) 1,700
= Operating EBITDAR after Associates and Minorities (j) 35,557
Debt & Cash Summary
Total Debt with Equity Credit (l) 36,595
+ Lease-Equivalent Debt 10,200
+ Other Off-Balance-Sheet Debt 0
= Total Adjusted Debt with Equity Credit (a) 46,795
Readily Available Cash [Fitch-Defined] 7,883
+ Readily Available Marketable Securities [Fitch-Defined] 0
= Readily Available Cash & Equivalents (o) 7,883
Total Adjusted Net Debt (b) 38,913
Cash-Flow Summary
Preferred Dividends (Paid) (f) 0
Interest Received 254
+ Interest (Paid) (d) (1,740)
= Net Finance Charge (e) (1,486)
Funds From Operations [FFO] ( c) 31,710
+ Change in Working Capital [Fitch-Defined] 3,976
= Cash Flow from Operations [CFO] (n) 35,687
Capital Expenditures (m) (30,360)
Multiple applied to Capitalised Leases 6.0
Gross Leverage
Total Adjusted Debt / Op. EBITDAR* [x] (a/j) 1.3
FFO Adjusted Gross Leverage [x] (a/(c-e+h-f)) 1.3
Total Adjusted Debt/(FFO - Net Finance Charge + Capitalised Leases - Pref. Div. Paid)
Total Debt With Equity Credit / Op. EBITDA* [x] (l/k) 1.1
Net Leverage
Total Adjusted Net Debt / Op. EBITDAR* [x] (b/j) 1.1
FFO Adjusted Net Leverage [x] (b/(c-e+h-f)) 1.1
Total Adjusted Net Debt/(FFO - Net Finance Charge + Capitalised Leases - Pref. Div. Paid)
Total Net Debt / (CFO - Capex) [x] ((l-o)/(n+m)) 5.4
Coverage
Op. EBITDAR / (Interest Paid + Lease Expense)* [x] (j/-d+h) 10.3
Op. EBITDA / Interest Paid* [x] (k/(-d)) 19.5
FFO Fixed Charge Cover [x] ((c-e+h-f)/(-d+h-f)) 10.1
(FFO - Net Finance Charge + Capit. Leases - Pref. Div Paid) / (Gross Int. Paid + Capit. Leases - Pref. Div. Paid)
FFO Gross Interest Coverage [x] ((c-e-f)/(-d-f)) 19.1
(FFO - Net Finance Charge - Pref. Div Paid) / (Gross Int. Paid - Pref. Div. Paid)
* EBITDA/R after Dividends to Associates and Minorities
Source: Fitch, based on information from company reports.
Corporates
Telecommunications / Sri Lanka
Dialog Axiata PLC
24 May 2018 12
Fitch Adjustment Reconciliation
Source: Fitch
Reported
Values
Sum of Fitch
Adjustments
Lease
Adjustment
- CORP -
(de)consolidati
on / non-
recourse
Other
Adjustment
Adjusted
Values
31 Dec 17
Income Statement Summary
Revenue 94,196 (27) (27) (0) 94,169
Operating EBITDAR 33,858 1,699 1,700 (1) 0 35,557
Operating EBITDAR after Associates and Minorities 33,858 1,699 1,700 (1) 0 35,557
Operating Lease Expense 0 1,700 1,700 1,700
Operating EBITDA 33,858 (1) (1) 0 33,857
Operating EBITDA after Associates and Minorities 33,858 (1) (1) 0 33,857
Operating EBIT 14,802 0 0 (0) 14,803
Debt & Cash Summary
Total Debt With Equity Credit 36,595 0 36,595
Total Adjusted Debt With Equity Credit 36,595 10,200 10,200 46,795
Lease-Equivalent Debt 0 10,200 10,200 10,200
Other Off-Balance Sheet Debt 0 0 0
Readily Available Cash & Equivalents 7,923 (41) (41) 0 7,883
Not Readily Available Cash & Equivalents 488 0 488
Cash-Flow Summary
Preferred Dividends (Paid) 0 0 0
Interest Received 254 0 254
Interest (Paid) (1,740) 0 (1,740)
Funds From Operations [FFO] 31,558 152 152 0 31,710
Change in Working Capital [Fitch-Defined] 3,976 0 3,976
Cash Flow from Operations [CFO] 35,535 152 152 0 35,687
Non-Operating/Non-Recurring Cash Flow 0 0 0
Capital (Expenditures) (30,360) 0 (30,360)
Common Dividends (Paid) (3,176) 0 (3,176)
Free Cash Flow [FCF] 1,998 152 152 0 2,151
Gross Leverage
Total Adjusted Debt / Op. EBITDAR* [x] 1.1 1.3
FFO Adjusted Leverage [x] 1.1 1.3
Total Debt With Equity Credit / Op. EBITDA* [x] 1.1 1.1
Net Leverage
Total Adjusted Net Debt / Op. EBITDAR* [x] 0.8 1.1
FFO Adjusted Net Leverage [x] 0.9 1.1
Total Net Debt / (CFO - Capex) [x] 5.5 5.4
Coverage
Op. EBITDAR / (Interest Paid + Lease Expense)* [x] 19.5 10.3
Op. EBITDA / Interest Paid* [x] 19.5 19.5
FFO Fixed Charge Coverage [x] 19.0 10.1
FFO Interest Coverage [x] 19.0 19.1
*EBITDA/R after Dividends to Associates and M inorities
Corporates
Telecommunications / Sri Lanka
Dialog Axiata PLC
24 May 2018 13
FX Screener
Forex risk is mitigated through Dialog’s US dollar receipts, which are about 12% of its revenue (around USD72 million),
provided by international inbound traffic and outbound roaming businesses. However, the company is exposed to some
forex risk as 70% of its term debt (USD149 million) is in US dollars.
Covenant Summary
Dialog’s debt covenants include limits on net debt/EBITDA and net debt/equity. Debt levels were well below the set limits
at end-2017, and we expect both metrics to improve over the forecast period.
0.95
1.00
1.05
1.10
1.15
1.20
1.25
1.30
-80-60-40-20
020406080
100120
Total debthard FC and
LC composition
Total cash Net debtand (cash)
Total saleshard FC and
LCcomposition
Total costshard FC and
LCcomposition
EBITDA
(% of revenues)
Hard FC short-term (LHS) Hard FC ˃1 year (LHS) Local currency short-term (LHS)Local currency ˃1 year (LHS) Current debt/EBITDA (RHS) FX stress debt/EBITDA (RHS)Current debt/FFO (RHS) FX stress debt/FFO (RHS)
Fitch FX Screener(Dialog Axiata PLC — AAA(lka)/Stable, 31 Decemer 2017)
(x)
Source: Fitch
Corporates
Telecommunications / Sri Lanka
Dialog Axiata PLC
24 May 2018 14
Full List of Ratings
Rating Outlook Last Rating Action
Dialog Axiata PLC
National Long-Term Rating AAA(lka) Stable Affirmed 04 April 2018
Related Research & Criteria
Corporate Rating Criteria (March 2018)
National Scale Ratings Criteria (March 2017)
Parent and Subsidiary Rating Linkage (February 2018)
Analysts
Nitin Soni
+65 6796 7235
Nadika Ranasinghe
+94 11 2541 900
Corporates
Telecommunications / Sri Lanka
Dialog Axiata PLC
24 May 2018 15
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