Bharti Airtel Lanka may still seek a merger and acquisition (M&A) deal due to competition and higher taxes amid elevated capex requirements, Fitch Rating said a latest report.
“Telcos in Sri Lanka will focus on profitability rather than price-based competition,” Fitch opined.
The company has already been posting continuous losses over the past few years, leading to record high accumulated losses . However, its parent Bharti Airtel continued to fund the entity .It recently re-assured the funding support the announced for Airtel Lanka’s 4G deployment in the country.
Airtel Lanka recently announced it has acquired the 900MHz spectrum from TRCSL, which was surrendered when Etisalat Lanka and Hutch Lanka merged in 2018. It is planning to its launch 4G network this year.
In September quarter, Airtel Lanka’s capital expenditure (capex) rose by two percent to around Rs 2.1 billion, driving the entity’s Free cash flow (FCF) into deep negative territory of over Rs 1.8 billion.
Airtel and Dialog Axiata was rumored to be engaged in M&A talks few years ago, although both firms had denied it.
With projected improvement in net leverage of Dialog and projected deterioration in net leverage of its main competitor, State-owned Sri Lanka Telecom (SLT)’s, Dialog is in better shape for a possible M&A deal with Airtel.
According Fitch, SLT’s cash flow from operations (CFFO) is projected to be insufficient to fund its large capex requirements and dividend commitments. The Rating Agency expects SLT to generate a negative Free cash flow (FCF) between Rs 4-7 billion.
“SLT’s CFFO will be insufficient to fund its large capex requirements and dividend commitments. Average Capex / revenue ratio will increase to 26 percent-27 percent (2020F: 23 percent-25 percent) as telcos return to normal Capex levels to expand 4G network coverage and fiber connectivity, following lower capex in 2020 due to the pandemic,” it stated.
At the same time, Fitch expects Dialog Axiata to maintain FCF between Rs 5-7 billion and the firm is projected to improve its net leverage and to generate a positive FCF margin of 5 percent-6 percent.
Meanwhile, In India, Bharti Airtel has announced plans to take its 5G and other network technologies to several markets including Sri Lanka through its own and partner operations, and plans to offer to other telcos going forward, according media reports.
Bharti Airtel is developing 5G network technologies in India through own R&D and in collaboration with local, US and Japanese firms.
It plans to bring a large ecosystem of partners including US’s Mavenir, Xilinx and Altiostar, Japan’s NEC and Taiwan’s Sercom that would support the telco to develop equipment using OpenRAN technology.
Airtel had 2.86 million customers in Sri Lanka at the end of September.