Dec 05, Colombo: Fitch Ratings has downgraded the rating on SriLankan Airlines Limited's (SLA) USD 175 million government-guaranteed bonds due in June 2019 to 'B' from 'B+'.
This follows the downgrade of Sri Lanka's Long-Term Foreign and Local-Currency Issuer Default Ratings to 'B' with a Stable Outlook (see 'Fitch Downgrades Sri Lanka to 'B'; Outlook Stable', dated 3 December 2018).
The national carrier's bonds are rated at the same level as SLA's parent, the state of Sri Lanka, due to the unconditional and irrevocable guarantee provided by the state. The Sri Lankan government held 99.5% of SLA at end-2017 through direct and indirect holdings.
KEY RATING DRIVERS
Heightened Refinancing Risk: The downgrade of the sovereign reflects heightened external refinancing risks, an uncertain policy outlook, and the risk of a slowdown in fiscal consolidation as a result of an ongoing political crisis. Fitch believes the ongoing political upheaval, which has disrupted the normal functioning of parliament, exacerbates the country's external financing risks, which are already heightened by the tightening of global monetary conditions amid a heavy external debt repayment schedule between 2019 and 2022. Fitch also expects fiscal slippages as the current political climate is likely to lead to delays in setting policy priorities and to disruption in progress on future reforms.
Fitch has rated SLA's US dollar-denominated bonds at the same level as the sovereign due to the unconditional and irrevocable guarantee provided by the government. The rating is not derived from its issuer's standalone credit profile and thus is not comparable to its industry peers.
Full ratings statement