Hutch-etisalat merger to ease competitive pressure

Meanwhile, Fitch said the recently announced merger between Hutchison Telecommunications Lanka (Private) Ltd and Etisalat Lanka (Private) 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. 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,” Fitch said.

The rating agency also noted that SLT’S National Long-term Rating could come under pressure if it were to carry out a debt funded acquisition of the smallest telco— Bharti Airtel Limited’s (Bbb-/stable) Sri Lankan subsidiary, Airtel Lanka.

However, Fitch said any rating action will be based on the acquisition price, funding structure and the financial and operating profile of the combined entity.

Meanwhile, Fitch maintains a stable outlook on Srio Lanka’s telecom sector as it expects the mean net leverage for SLT and mobile market leader, Dialog Axiata PLC (Aaa(lka)/stable), to remain stable at around 1.4x in 2019.

“We expect the sector’s cash generation to improve, driven by higher mobile and broadband data usage, which will be insufficient, however, to fund the large capex requirement, leading to negative FCF.

We also expect average operating EBITDAR margins to remain stable at around 34 percent (2018 estimate: 34 percent), driven by improving economies of scale in the data and home broadband segment, offsetting the negative impact of the changing revenue mix,” Fitch said.