Vallibel One dials Suntel

Sri Lanka’s latest conglomerate Vallibel One Ltd., (VOL) is ringing a prospective entry to the telecom sector with a clean bid for Suntel Ltd., in competition with industry giant Dialog whilst SLT is not in the fray contrary to strong speculation.

Daily FT learns that business leader Dhammika Perera-controlled and newly listed VOL has made a bid worth US$ 28 million (around Rs. 3.08 billion) for 100% stake of Suntel Ltd., which has been hunting high and dry for a buyer for over two years.

Market leader Dialog Axiata has offered a two tiered bid worth $ 26.5 million and $ 31 million with the latter amount involving several conditions including a VRS for 250 staff, resolution of litigation etc.

Dialog, has been a quick speculation ever since ‘Suntel up for sale’ talk emerged but the Malaysia-based Axiata’s Sri Lankan unit has neither denied nor confirmed it was bidding.

National carrier SLT which too has been cited as a key contender has conveyed in writing that though it evaluated Suntel, a bid won’t be made.

All three parties flagged or linked to bidding of Suntel are listed and haven’t made any formal disclosure to the Colombo Stock Exchange as yet. Previously there had been industry talk that several Indian telecom firms were keen but nothing materialised.

Daily FT learns that the sale of Suntel is handled by an overseas financial institution and a decision either way is likely this week or within this month.

Suntel began operations in late 1996 and soon after emerged as the third largest with an estimated customer base of half a million with a strong corporate footprint by 2008. However thereafter its customers, have migrated to other operators and its current base is estimated at 350,000, far below Lanka Bell’s 1.1 million. Suntel has a total staff of 710, of which 490 are permanent, (of which Dialog wants 250 trimmed) and 220 on contract.

Industry analysts estimate that the operation is loss making but has scope for a long-term player which can restructure Suntel and make it aggressive. The technology it uses CDMA, has its own advantages as opposed to the popular GSM. Interestingly both Dialog and SLT have their own CDMA business and analysts said there is considerable tax-free savings via consolidating towers and sales points etc., if either of these acquires Suntel.

For Vallibel One, it is  a blue ocean strategy, whilst given its growing profile with controlling stakes in Royal Ceramics, LB Finance, Delmege Forsyth, as well as 15% stake in Sampath Bank along with Dhammika’s stronghold in diversified blue chip Hayleys and several other firms, VOL and connected parties command a sizeable captive business base.

In 2009/10, telecom industry bled profusely due to cutthroat competition. However return to sanity and regulatory support along with rationalisation of taxes have resulted in better fortunes so far in 2011.

The other fixed operator Lanka Bell which too had a bad patch for sometime saw a significant turnaround posting a net profit of Rs. 113 million in FY2011 overturning a loss of Rs. 798 million in the previous year.

Lanka Bell commanding a better brand value than Suntel, attributed the turnaround to recovery in performance could be attributed to regulatory measures such as the introduction of the interconnection regime, various cost control measures, improved revenue through sea cable powered service FLAG and use of cash generated through operations being used to settle long term liabilities, which in turn drove down financial cost such as the reduction in amounts payable as interest. In the FY12 first quarter Lanka Bell made a profit of Rs. 15 million, as opposed to a loss of Rs. 74 million. Turnover was static at Rs. 1.1 billion.

Distilleries too has been on the lookout for a buyer for Lanka Bell, with some speculating the asking price being $ 50 million.

SLT at company level saw revenue drop by 2% in 2011 first half to Rs. 16 billion but operating profit rose by 52% to Rs. 1.9 billion and pre-tax profit by 70% to Rs.2.35 billion and after tax profit rose by 106% to Rs. 1.75 billion. Group after tax profit improved by 77% to Rs. 2.4 billion.

Dialog at company level saw its 2011 first half revenue grow to Rs. 20.1 billion from Rs. 18.4 billion whilst operating profit declined to Rs. 2.9 billion from Rs. 3.3 billion and pre-tax profit remaining almost static at Rs. 3.1 billion. Group after tax profit improved to Rs. 2.54 billion from Rs. 2 billion in the first half of 2010.

As per Central Bank data, the country had 2.68 million fixed wireless access subscribers as at end first quarter, up by 0.5% over end 2010 base of 2.67 million. Fixed wire line service grew by 0.7% to 3.6 million subscribed. Mobile base saw a 3.3% growth in the first quarter to 17.8 million subscribers from 17.2 million as at end 2010. Telephone density excluding cellular phones was 17.4 (per 100 persons) whilst including mobile it was 103.7 (per 100 persons).

Suntel is owned by a consortium led by Sweden’s Overseas Telecom AB and includes Metrocorp Ltd., Telecom Venture Group Ltd., International Finance Corporation, NDB Bank, C Tech Investments Ltd., and Kelmarsh Investments Ltd. It provides voice, data and managed services.