Fitch Ratings has removed the Rating Watch Negative (RWN) on Distilleries Company of Sri Lanka PLC’s (DIST) National Long-Term Rating, and has affirmed the rating at ‘AAA(lka)’. The outlook is stable.
The removal of the RWN reflects our view that DIST and parent Melstacorp PLC have effectively concluded the group’s restructuring exercise without an increase in credit risk after the private placement of DIST shares to Melstacorp in February 2018. Melstacorp, which owns 92% of DIST, has yet to meet the requirement set by the Colombo Stock Exchange to increase the company’s public float to 7.5% from 3.2% but we think this is more of a formality at this stage.
Fitch rates DIST based on the consolidated profile of Melstacorp due to the strong linkages between the two entities, as defined in our Parent and Subsidiary Rating Linkage Criteria. The affirmation of DIST’s National Long-Term Rating reflects the group’s strong credit profile, underpinned by its entrenched market position in Sri Lanka’s alcoholic-beverage sector and the high entry barriers, which drive strong operating cash flows and low leverage, and offset the weaknesses in its other, less operationally significant, investments.
DIST’s rating also factors in the group’s enhanced operating scale and cash flow diversity following the increase in its effective shareholding and management control of Aitken Spence PLC (ASP) to 51% in March 2018, from 49% previously.
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