Home / Bussiness / Fitch Affirms Sri Lanka Telecom’s Debt Ratings Following Tax Hike

Fitch Affirms Sri Lanka Telecom’s Debt Ratings Following Tax Hike

Fitch Ratings has actually verified Sri Lanka Telecom’s financial obligation scores, with a steady outlook following modifications to the tax program presented by the brand-new government.Fitch stated that the Sri Lankan government’s interim budget strategy to enforce considerable repeating and one-off taxes will certainly trigger a decrease in SLT’s 2015 operating EBITDAR margin to 26 % (2014: 30 %)and its funds circulation from operation(FFO) -changed net take advantage of to degrade to 1.8 x(2014: 1.3 x).

SLT is most likely to pay around LKR3.5bn-4bn in extra taxes.However, SLT’s scores will certainly stay untouched as headroom is sufficient.The interim budget plan presented a one-off very gains tax of 25 % on earnings and a one-off tax of LKR250m on each mobile operator. It likewise moved the problem of a repeating telecom levy of 25 % on pre-paid income on telcos from customers; operators can not pass these taxes onto customers offered retail prices modifications need approval from the telecom regulatory authority.

The budget plan propositions, as soon as enacted, will certainly work from 1 April 2015. Acquisition Risk Fitch believes that SLT’s strategy to do a debt-funded acquisition of a smaller sized operator in 2015 has the possible to threaten its National Long-Term Rating, although most likely not its IDRs. Any score action would depend upon the acquisition rate and forecast monetary profile of the consolidated entity.The scores company likewise thinks that the tax modifications will certainly quicken market consolidation as the variety of telcos might be minimized to 3 from 5. 2 smaller sized loss-making operators consisting of Hutchison Lanka and Bharti Airtel’s Sri Lanka subsidiary, Airtel Lanka, might leave the industry.

Reduced Ratings Headroom SLT’s ‘BB-‘financial obligation score has adequate scores headroom to accommodate a debt-funded acquisition of a smaller sized operator as long as FFO-adjusted net take advantage of stays listed below 2.5 x. The scores are underpinned by its market leading position in fixed-line and second-largest position in the mobile market, in addition to its ownership of a country-wide optical fibre network.Negative FCF to Continue They likewise anticipate that SLT will certainly have unfavorable totally free capital(FCF)in 2015-18 offered lower EBITDA due to brand-new repeating taxes and a huge capex strategy. SLT will certainly remain to invest about 25 % -28 % of profits in capex each year to broaden its optical fibre facilities and 3G/4G mobile networks.

Dividends would likely stay just like the historic levels at LKR1.5 bn.Profitability to Decline Fitch anticipates SLT’s 2015 income to increase by high single-digits driven by mobile information and fixed-broadband services|fixed-broadband services and mobile information, which will certainly more than balanced out decreases in fixed-voice and worldwide profits. Voice use is most likely to grow as customers conserve 25 % of their telecom invest as an outcome of the shift of the telecom levy to telcos.

Fitch forecasts that running EBITDAR margin will certainly likewise fall, apart from tax modifications, due to a modification in the profits mix as low-margin information services change fairly higher-margin voice and text profits.


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