Dec 05, Colombo: Fitch Ratings has downgraded Sri Lanka Telecom PLC's (SLT) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to 'B' from 'B+'. The Outlook is Stable.
The agency has affirmed SLT's National Long-Term Rating at 'AAA(lka)' with a Stable Outlook. Fitch has also affirmed the national rating at 'AAA(lka)' on the LKR 7 billion debt program.
The rating action follows Fitch's downgrade of Sri Lanka's Long-Term Foreign- and Local-Currency IDRs to 'B' from 'B+' (see "Fitch Downgrades Sri Lanka to 'B'; Outlook Stable," dated 4 December 2018 on www.fitchratings.com).
SLT's IDRs are constrained by Sri Lanka's IDRs as per Fitch's Government-Related Entities Rating Criteria, as the state holds a majority stake in SLT directly and indirectly, and exercises 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.
SLT's standalone credit profile, assessed by Fitch at 'BB', is stronger than that of its owner, reflecting the company's market-leading position in fixed-line services and second-largest position in mobile, along with its ownership of an extensive optical-fiber network. The standalone profile is also underpinned by its mid-single-digit percentage growth prospects, moderate estimated 2018 FFO adjusted net leverage of 1.7x and stable operating EBITDAR margin.
KEY RATING DRIVERS
Strong State Linkages: Fitch sees SLT's status, ownership and control by the Sri Lankan sovereign as 'Strong'. The state's ownership gives it significant influence over operating and financial policies. We view the support record and expectations for the likelihood of state support for SLT as 'Strong', given its strategic importance in expanding the country's fiber infrastructure. Historically, SLT has not required tangible financial support due to its healthy financial profile.
State's Incentive to Support: Fitch sees the socio-political implications of a default by SLT as 'Moderate' due to the presence of three other privately owned telcos. However, it could affect the fixed-line market because SLT acts as a policy company to invest in fiber networks across the island to support the government's vision of fiber-based internet for all households. Fitch also sees the financial implications of a default as 'Strong', as a financial default by SLT may have an impact on the availability and cost of financing options for other government-related entities.
The full Fitch Ratings statement