IFC ceases to be among top 20 shareholders of Dialog

IFC, the private sector funding arm of the World Bank, has significantly cut its exposure to the shares of Sri Lanka’s leading telco, Dialog Axiata PLC, most likely at a loss, according to stock analysts Mirror Business talked to.

IFC has been divesting its Dialog shares since 4Q17 and was not featured among the top 20 shareholders of Dialog as at June 30, 2018.

IFC held little over 64 million shares or 0.79 percent of Dialog’s issues shares for a long time, frequently featuring among the top 10 shareholder of the company. Even as far back as March 31, 2012 (oldest interim account available on CSE’s official website), IFC held the exact amount.

However, during the 4Q17, IFC’s holding in Dialog had come down to little over 40 million shares or 0.49 percent and by March 31, 2018 (1Q18), the holding had further come down to little over 20 million shares or 2.49 percent.

But IFC was still among the top 20 shareholders of Dialog.

However, according to the latest interim financial accounts of Dialog released for the April-June quarter (2Q18), IFC was not among the top 20 shareholders of Dialog. IFC is one of the initial investors with Dialog since the company went public in 2005. In 2007, IFC infused US$ 100 million into Dialog-US$ 30 million equity investment to acquire a 1.6 percent holding in Dialog from Telekom Malaysia and a US$ 70 million as a loan.

Brokers say Dialog share had been performing “weak” in the past two weeks amid the removal of the floor rates and introduction of Rs.200, 000 tax on each telecom tower per annum, starting from next year.

Although some telecom analysts fear the removal of floor rates may result in an irrational price war, BRS Equity Research, the research arm of a Colombo-based equity brokerage, thinks Dialog could increase its market share with competitive pricing.

“Given the existing high margins in the mobile business, we expect Dialog has the ability to lower call rates which would attract market share especially from networks with smaller subscriber bases,” BRS Equity Research said.

BRS Equity Research expects Dialog, which had customer market share of 44 percent as of 2017, to price their voice call rates at or above the unit cost of the voice call.

Once the floor rate is removed, calls made within the same network would cost less for the services provider due to the absence of call termination fees and more, and would be priced lower.

“As Dialog has a larger customer base, a Dialog user can enjoy lower rates for most of the calls he/she makes as opposed to a user using a service provider with a smaller customer base.

It would be convenient for a subscriber using a service provider with a smaller subscriber base to move to a service provider with a larger subscriber base as calls within the same network would be cheaper,” BRS Research noted.

Meanwhile, assuming Dialog owns 2,100 towers, BRS Equity Research estimates the tax hit on the firm to be Rs.420 million per annum.

Dialog share closed at Rs.12.20 at yesterday’s trading.