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Senator opposes Dito move to use telco franchise as collateral to obtain funding

SENATOR Grace Poe has called to task Dito Telecommunity for applying for a franchise without anticipating how much it needed to fund the venture.

During the recent hearing by the Senate Committee on Public Services, Poe also objected to the use of Dito’s franchise as collateral to obtain more funding.

This developed after Asia-Pacific consulting firm CreatorTech, in a study, cited Dito’s potential inability to raise enough capital to fund the venture.

The study said that to meet its commitments of US$3 billion spending in its first year, Dito will need a further US$2.5 billion in addition to the US$500 million already drawn down from its Bank of China credit facility.

Given the current Balance Sheet, this US$2.5 million would not come from equity. The only other source is debt. The sole lender is the Bank of China. Commercially, it is unlikely that the Bank of China on its own would extend the total amount. Funding would therefore appear to be a risk for Dito, and funding from China is seen as being extended for political reasons,” the report added.

CreatorTech warned that delays due to various factors may cause Dito to miss its commitments. This would result in a large fine and the possible surrender of its license.

Building a telecommunications network in the Philippines is extremely challenging due to natural and geographical conditions and the new telco may therefore not rise to these challenges as well as the two incumbent telcos have done,” the study added.

Dito Chief Administrative Officer Adel Tamano had admitted that Dito has a 70-30 debt-to-equity ratio, with P20 billion in equity and P150-billion worth of debt and shareholder advances for its initial rollout this year. He also confirmed that the deferral of its franchise renewal would make it more difficult for the telco to obtain further financing or loan approvals.

Udenna Corp., the holding firm of Davao-based businessman Dennis Uy had recorded lower earnings in 2019, way before the pandemic.

Uy’s Chelsea Logistics, which sold 25% of its stake to Dito, reported a net loss of P2.60 billion in the first nine months of 2020 due to the pandemic, a reversal of the P20 million net income it recorded in the same period in 2019..

Chelsea saw revenues drop by 35 percent to P3.33 billion during the nine-month period from P5.15 billion a year.

Despite the sale, Chelsea Logistics continues to hold 25 percent of Dito Telecommunity indirectly through Dito Holdings.