TEXT-Fitch affirms Dialog Axiata at 'AAA(lka)'/stable

(The following statement was released by the rating agency)

Oct 08 - 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 andsome operational integration between the two companies. Axiata has providedtangible support to Dialog throughout its history, most recently in 2009 via ashareholder loan and a corporate guarantee on a long-term offshore bank creditline.

Dialog's standalone credit profile is strong, and has improved between 2010 and2012, helped by a benign competitive environment and improving usage across mostservice segments. Fitch has therefore reassessed Dialog's standalone profile at'AA+(lka)', up from 'AA(lka)' earlier. The agency expects Dialog's standaloneprofile to continue to improve over the medium term, driven by the company'sability to fund its capex from strong operating cash flows.

Dialog's revenue exposure to the overcrowded domestic mobile telecoms industryhas reduced to 54% at end-June 2012 (H112) from 65% in 2009. Mobile as a shareof revenue is likely to remain at current levels over the long term, aided bypotential faster growth in the fixed-line and television segments. Fitch expectssubscriber acquisition and retention costs to remain high, exerting moderatepressure on EBITDAR margins, as the country's five telecom operators compete fora 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 sufficientavailable cash balances and free cash flows (FCF, defined as cash fromoperations less dividends and capex) to cover upcoming debt maturities. Thecompany's annual USD-denominated operating cash flows of approximately USD50mare sufficient to cover repayments on its USD debt through to 2016. At end-201167% of Dialog group debt was denominated in USD.

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


Negative: Future developments that may, individually or collectively, lead tonegative rating action include:

- A material dilution in Axiata Berhad's ownership or board control in Dialog,removal of the common brand name, or a weakening of the current strategic andoperational ties between the companies

Positive: There is no scope for upgrade as the company is at the highest ratingon the Sri Lankan National Rating scale.

((Bangalore Ratings Team, Hotline: +91 80 4135 5898Debanjali.Ghosh@thomsonreuters.com, Group id: BangaloreRatings@thomsonreuters.com, ReutersMessaging:Debanjali.Ghosh.reuters.com@reuters.net))

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