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Fitch confirms ‘AA(lka)’ rating of Dialog Finance

ECONOMYNEXT – The rating of Sri Lanka’s Dialog Finance Plc, a 98 percent unit owned by telecom operator Dialog Axiata has been confirmed at ‘AA(lka)’ based on support from the parent.

Dialog Finance was bought in September 2017 to push digital financial services in a ‘fintech’ model.

“However, DF has not yet commenced its intended business model and we do not expect the segment to provide a significant contribution to the group’s core business in the medium term,” Fitch Ratings said.

“DF’s business model is likely to focus on digital financial services leveraging on Dialog’s technical
competencies.”

However Dialog is expected to inject cash needed to meet a 2.5 billion rupee capital requirement by 2020, Fitch said.

The full statement is reproduced below.

Fitch Affirms Dialog Finance at ‘AA(lka)’

Fitch Ratings has affirmed Dialog Finance PLC’s (DF) National Long-Term Rating of ‘AA(lka)’. The
Outlook is Stable.

Key Rating Drivers

Sri Lanka

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DF’s rating reflects Fitch’s view that support would be forthcoming from parent, Dialog Axiata PLC
(Dialog, AAA(lka)/Stable), Sri Lanka’s largest mobile-telecommunication and pay-TV operator.

This is based on Dialog’s 98.9% equity stake, DF’s high operational and management integration with the
parent and the common Dialog brand.

Dialog’s credit profile and its ability to support DF is reflected in its rating, which is underpinned by
its standalone strength.

DF is rated two notches below its parent because Fitch considers it of limited importance to Dialog’s core business given the business’s stage of development, size and financial contribution to the group.

DF was acquired in September 2017 to support Dialog’s aspiration to expand its parent’s digital financial services in Sri Lanka via the fintech business model.

However, DF has not yet commenced its intended business model and we do not expect the segment to provide a significant contribution to the group’s core business in the medium term.

DF’s business model is likely to focus on digital financial services leveraging on Dialog’s technical competencies.

DF’s management and operational integration with the parent is also likely to remain high. Fitch expects DF to initially focus on Dialog’s subscriber base and is also likely to utilise Dialog’s mobile platforms to support its financial transactions.

We see DF’s intrinsic credit profile as being considerably weaker than its support-driven rating. We expect Dialog to continue to inject equity capital to enable DF to meet the minimum regulatory capital requirement of LKR2.5 billion by 1 January 2021.

RATING SENSITIVITIES

A weakening of the links with its parent, including a meaningful reduction in parental control or influence and/or reduced importance to the group in terms of its role in supporting broader group objectives, could trigger a rating downgrade on DF.

Fitch believes a rating upgrade will most likely result from a significant increase in DF’s strategic
importance to its parent through an increase in its role within the Dialog group.

Dialog Finance PLC; National Long Term Rating; Affirmed; AA(lka); RO:Sta