Fitch Ratings has affirmed Sri Lanka-based Ceylon Electricity Board’s (CEB) National Long-Term Rating at ‘AAA(lka)’ with a Stable Outlook.
CEB’s rating is equalised with that of the Sri Lankan sovereign (B+/Stable), reflecting strong linkages with the parent, in line with Fitch’s Parent and Subsidiary Rating Linkage criteria.
The equalisation takes into consideration CEB’s strategic importance to Sri Lanka in ensuring power security and supply of affordable electricity to the public as the monopoly electricity transmitter and distributor in the country. CEB also accounts for around 70% of the power generation in the country.
Fitch assesses the linkages between CEB and the state as strong, reflecting high ownership and management control, explicit guarantees and financial support through equity infusions and debt funding.
The government also implicitly guarantees CEB’s project loans (about 80% of outstanding debt), which are extended by bilateral and multilateral agencies and routed through the government for development of power infrastructure. CEB provides electricity at subsidised rates, fulfilling an essential service for the government. CEB has almost full network connectivity and accounted for more than 70% of Sri Lanka’s generation capacity at end-2017.
We do not expect CEB’s linkages with its parent to weaken in the medium term as the government’s need to provide electricity at subsidised rates can be carried out only by a state entity such as CEB, as private companies would not be willing to incur losses. Fitch views CEB’s standalone credit profile as much weaker than its support-driven rating and believes providing a notch-specific standalone credit view of CEB is meaningless due to poor margin visibility and the need for continued state support to sustain operations.
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