“This is mainly due to the devaluation of the rupee in the first two quarters against the dollar. However, we believe that the impact would be less in the third and fourth quarters as the rupee is now stabilizing,” Palpita said. “The parent companies of the majority of service providers in the local telecommunication industry are foreign companies and they obtain loans in dollars. Therefore, the devaluation of the rupee has hit them hard in debt servicing,” he added.
During November 2011, Sri Lanka devalued its currency by 3 percent and the Central Bank adopted a more flexible exchange rate system, leaving a rupee peg against the US dollar that had resulted in the depletion of foreign reserves.
According to the recent data released by the Census and Statistics Department, the Sri Lankan rupee has depreciated 18 percent since last November. Currently, the rupee is hovering around 130-132 against the US dollar.
Palpita also said that apart from the dollar loan exposures, Lankan telecom companies import the major part of their equipment and this also has resulted in them incurring exchange losses.
“High electricity and transport costs also have added to their misery,” he noted.
The senior official of a well-known and popular fixed line and CDMA provider told Mirror Business that they have been hard hit as a result of the depreciation of the rupee.
“Yes, we are struggling to repay our dollar loans and if the devaluation continues, it will dearly affect our overall profits and operational costs,” she stressed.
Meanwhile, the market leader in telecommunication, Sri Lanka Telecom PLC (SLT) has admitted that there was a drastic negative impact following the rupee depreciation and added the impact has impacted the overall profit of SLT.
SLT incurred a Rs.1.9 billion exchange loss for the first half of 2012 (January-June) as a result of the US dollar denominated loan its mobile subsidiary Mobitel had taken. Meanwhile, Dialog Axiata PLC incurred an exchange loss of Rs.206 million in the same period.