Suntel and Dialog Broadband to Merge Operations

Dialog Broadband Networks Private Limited (DBN), a fully owned subsidiary of Sri Lanka’s premier mobile services provider Dialog Axiata PLC today entered in to a Share Purchase Agreement (SPA) to acquire 100 percent of the ordinary shares of wireless fixed line operator Suntel Ltd from its current shareholders. The definitive execution of the acquisition will follow the satisfaction of conditions precedent to the transaction defined in the SPA. The successful consummation of the transaction during the course of the next few months is envisaged to lead to the merger of the operations of DBN and Suntel and the creation of a merged entity, providing advanced fixed line and broadband services to Sri Lankan consumers.

Suntel commandeers a premium position in Sri Lanka’s fixed telecommunications sector and is ranked second in the sector in terms of fixed telecommunications business and Revenue Market share. Suntel commenced operations in 1996 and is currently a subsidiary of Swedish telecom operator Overseas Telecom AB. Other shareholders of Suntel include NDB (National Development Bank PLC), C-Tech Investments (Private) Ltd, Kelmarsh Investments Ltd, Townsend Limited and International Finance Corporation (IFC).

“The Sri Lankan telecom sector after 15 years of robust growth is soliciting consolidation,” Jerry Huxtable, Managing Director of Suntel said. “Suntel is committed to providing a superior service to our loyal customer base, and today are at a point in our evolution where bullish and forward thinking investments are needed to elevate our broadband infrastructure to best in class standards.”

“I believe industry consolidation which crystallises economies of scale and brings together the shared effort and investment capacity of leading industry players is an optimum strategy to deliver enhanced value to consumers and the industry at large going forward. The agreement entered in to by our shareholders with DBN paves the way for a renewed thrust of investment in Sri Lanka’s fixed telecommunications and broadband sector which I believe will be of benefit to all stakeholders.”

Suntel’s fixed telecommunications infrastructure is based on a 382 base station strong network delivering fixed voice, broadband and data communication services using CDMA, WiMAX and other fixed wireless access technologies.

DBN, a fully owned subsidiary of Dialog Axiata PLC, was the 4th entrant to Sri Lanka’ fixed telecommunications sector in 2006 and has since consolidated a robust and rapidly growing position in the sector based on its portfolio of fixed telecommunications, broadband and optical fibre based transmission infrastructure services. Since becoming a member of the Dialog Axiata Group in 2006, the company has invested Rs 11.8Bn in the expansion of its fixed telecommunications and broadband infrastructure with a particular focus on the development of its optical fibre network which is being rolled out on a nationwide basis.

The share purchase agreement signed between DBN and the shareholders of Suntel envisages the transaction to be completed at an EV (Enterprise Value) in the range of USD 33.9Mn to USD 34.9Mn, corresponding to a Valuation Multiple of 3.0x- to 3.1x of FY10 EBITDA, subject to the outcome of confirmatory business valuation and due diligence during the period leading up to the completion of the transaction. The transaction, leading ultimately to the merger of Suntel with DBN will secure the distinction of being the single largest consolidation initiative within Sri Lanka’s Telecommunications sector. Following the entering in to of the SPA, parties to the transaction expressed their appreciation for the facilitation and enablement received from the Telecommunications Regulatory Commission of Sri Lanka, the Board of Investment and agencies of the Ministry of Finance, and also for the execution support extended by advisors J.P. Morgan, MacQuarie Capital, Mannheimer Swartling, F.J. & G. De Sarams, Dr Shivaji Felix, John Wilson and escrow agents Standard Chartered Bank PLC.

Chairman of Dialog Broadband Networks and Group Chief Executive at Dialog Axiata PLC Dr. Hans Wijayasuriya commenting on the transaction said, “We are indeed privileged to have been afforded the opportunity to combine with Suntel through this beachhead industry consolidation initiative. Going forward, the combined strengths of DBN and Suntel will be synergised towards establishing a best in class infrastructure platform for the provision of high quality fixed telecommunications and broadband services which are expansive in their availability, and inclusive in terms of affordability to Sri Lankan citizens.”

“Our combined efforts will be focused on supporting the aspiration of the Government of Sri Lanka to enhance the affordability and availability of high quality broadband services. Accordingly, our expansion plans for the fixed telecommunications sector will target the establishment of an infrastructure and service proposition which is based on advanced technology, robust infrastructure featuring our rapidly expanding fibre optic network and excellent customer service. Suntel is a much admired service provider on Sri Lanka’s telecommunications landscape and will bring to the merger, very significant value in terms of a best in class fixed line operations framework, highly competent human capital and a longstanding customer base earned and retained through an impeccable record in service delivery. Through the combination of our strengths, we look forward to providing our mutual customers with unparalleled value and quality of service as we enter an exciting new era of broadband centric telecommunications development” Dr Wijayasuriya added.

As disclosed in a recent release of Financial Results of the Dialog Group for the 9 months ending September 2011, Dialog Broadband Networks reported Revenues and EBITDA of Rs 1.8Bn and Rs 456Mn respectively for the period under review. The combined operations of Suntel and DBN are accordingly envisaged to crystallise the formation of a strong second ranked player in the fixed telecommunications sector with a combined Revenue and Subscriber Market share of approximately 16% and 23% respectively.