APART from the alleged security threat posed by the Chinese government’s control over Dito Telecommunity, a study into the new telecoms operator in the Philippines has questioned the company’s ability to raise enough capital to fund the venture.
The report, called “A Study Into The Proposed New Telecommunications Operator In The Philippines: Critical Success Factors and Likely Risks,” was published by CreatorTech — an Asia-Pacific consulting firm and industry specialist providing research and telecoms and IT advisory services to public and private sector organizations across the region.
The paper’s author, Steve Mackay, outlined several concerning matters in relation to the new entrant, including cybersecurity issues, financial risks and the lack of incentive to cover remote areas of the country.
CreatorTech’s report identified as a risk Dito’s inability to raise enough capital to fund the venture. To meet its commitments of US$3bn spending in its first year, Dito will need a further US$2.5bn in addition to the US$500m already drawn down from its Bank of China credit facility.
“Given the current Balance Sheet, this US$2.5bn 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,” Mackay said. “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.
This finding comes as analysts expressed concern over Dito CME Holdings Corporation’s move for a controlling stake in Dito Telecommunity through layers of companies.
The Philippine Stock Exchange (PSE) suspended trading of Dito CME after the company disclosed that it executed the buyout of affiliate Udenna Communications Media and Entertainment Holdings Corp. (Udenna CME) last Nov. 11 via a P68.4-billion share swap with Uy’s holding company, Udenna Corp. The PSE said that the suspension would be in effect until a “full and comprehensive disclosure” is released.
Stock market observers are reportedly wary of the ongoing reorganization since investors “were being issued details on a piecemeal basis.” Some stock brokers called the PSE trading suspension of Dito CME a welcome move because more information was needed on the “backdoor listing” of Udenna CME. “They should submit the financials of Udenna CME so that the public knows what they are acquiring,” a broker said, referring to details such as the valuation report to justify the multibillion peso share swap.
Dennis Uy’s Chelsea Logistics also reported a net loss of P2.60 billion in the first nine months of 2020 due to limited operations across all its business segments. This was a reversal of a P20 million net income recorded in the same period last year.
Chelsea, which earlier this year sold 25% of its stake in Dito, saw revenues drop by 35 percent to P3.33 billion during the nine-month period from P5.15 billion a year ago as a result of continued community quarantine measures which adversely impacted its operation. Despite the sale, Chelsea Logistics continues to hold 25 percent of Dito Telecommunity indirectly through Dito Holdings.
CreatorTech warned that “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.” Accumulated 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.