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Senator questions Dito’s move to use telco franchise as collateral for funding

A senator questioned Dito Telecommunity decision to apply for a franchise without anticipating how much it needed to fund the venture.

Senator Grace Poe, in a recent hearing called by the Senate Committee on Public Services, 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 $3-billion spending in its first year, Dito would need another $2.5 billion, addition to the $500 million it drew down from Bank of China.

“Given the current balance sheet, this $2.5 billion 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 said.

CreatorTech warned that delays over various factors might 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 stated.

Dito chief administrative officer Adel Tamano earlier admitted that Dito had 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, recorded lower earnings in 2019 even before the pandemic hit.

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

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

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

Topics: Dito Telecommunity , Senator Grace Poe , Senate hearing , debt equity ratio
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