Airtel Lanka may seek either a merger or an acquisition with a larger counterpart, as the telco company will continue to be mired in intense competition while it will be required to spend heavily on network expansion and new generation of technologies.
Fitch Ratings made this assertion for the second time in a span of 10 months, as it expects the telcos to focus on profitability and not expect the price-based competition to intensify.
“We expect further sector consolidation and believe Airtel Lanka, a subsidiary of Bharti Airtel Limited (BBB-/Negative), may seek M&A due to mobile competition and higher taxes amid high capex requirements,” the rating agency said.
In 2018, Hutchison Telecommunication Lanka acquired Etisalat Lanka, relieving some competitive pressure from the telco players.
Airtel Lanka had acquired the 900MHz spectrum that was surrendered when Etisalat Lanka and Hutch Lanka merged.
In an earlier report, Fitch said if Dialog Axiata PLC, Sri Lanka’s largest mobile telecommunication company, wants to pursue an acquisition, it has sufficient headroom to make a leveraged buyout. “Dialog’s ratings have sufficient headroom for the company to undertake a debt-funded acquisition of a small operator. However, any rating action would depend on the acquisition price, funding structure and the financial and the operating profile of the combined entity,” the rating agency said then.
Dialog Axiata PLC has a ‘AAA’ rating with a Stable outlook by Fitch. Telcos were among a few industries, which became early winners of the pandemic, as people shifted work, education and entertainment online, primarily based on data provided by these companies. As both the industry and governments around the world still pressing on people to avoid physical contacts as much as possible, the demand for data would only grow, putting earnings potential of telco companies at a higher level.
With the October-December earnings season just begun, it is expected that the telcos to have reported stellar performance in their top and bottom lines. Early this week, Fitch said the deployment of the fifth generation or 5G mobile technology in Sri Lanka could get delayed beyond 2022, due to unspecified reasons.