Fitch has revised the Outlook on Ceylon Electricity Board’s (CEB) National Long-Term Rating to Negative from Stable and has affirmed the rating at ‘AA+(lka)’.
The rating on CEB, which is fully state owned, is equalised with that of the Sri Lankan sovereign to reflect strong linkages, 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. Strong Linkages with State: Fitch assesses linkages between CEB and the state to be strong, reflecting explicit guarantees and financial support through equity infusions and debt funding. The government also implicitly guarantees CEB’s project loans, which account for around 80% of its outstanding debt. These loans are extended by bilateral and multilateral agencies and routed through the government for power infrastructure development.
Fitch believes the Sri Lankan government uses CEB as a vehicle to provide an essential public service. CEB provides electricity at subsidised tariffs without adequate and timely financial compensation from the government.
Fitch Ratings has revised the Outlook on Sri Lanka Telecom PLC’s (SLT) National Long-Term Rating to Negative from Stable and affirmed the rating at ‘AA+(lka)’. Fitch also affirmed the National Ratings on SLT’s outstanding senior unsecured debentures at ‘AA+(lka)’.
SLT’s ratings are constrained by the sovereign as per Fitch’s Parent and Subsidiary Rating Linkage criteria. We assess the relationship between the sovereign and SLT as one of a weaker parent and stronger subsidiary with strong operational and strategic linkages.
The state holds a majority stake in SLT directly and indirectly, and can exercise significant influence on its operating and financial profile. SLT’s second-biggest shareholder, Malaysia’s Usaha Tegas Sdn Bhd at 44.9%, has no special provisions in its shareholder agreement to dilute the government’s significant influence over SLT.
We expect SLT to have negative free cash flow (FCF) during 2019-2020 (2018 negative FCF of LKR3.4 billion), as cash flow from operations could be insufficient to fund capex requirements to expand the fibre infrastructure and 4G mobile networks.
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