June 10, Colombo: Fitch Ratings has upgraded Sri Lanka-based Kotagala Plantations PLC’s National Long-Term Rating to ‘B+(lka)’, from ‘RD(lka)’. The Outlook is Negative. Fitch has simultaneously upgraded the National Long-Term Rating of Kotagala’s outstanding senior unsecured debentures to ‘B+(lka)’, from ‘C(lka)’.

The upgrade reflects the completion of Kotagala’s debt restructuring process in May 2023. The Negative Outlook considers the company’s weak liquidity given its untested post-restructuring bank access and Fitch’s expectation that Kotagala’s internal funding sources will be insufficient to meet its obligations in the financial year ending March 2024 (FY24).

KEY RATING DRIVERS

Loan Restructuring Completed: Kotagala restructured its bank loans by obtaining waivers for accrued and past-due interest and receiving maturity extensions. The company restructured its outstanding LKR500 million debentures in September 2020 and around LKR1.2 billion of its bank loans by extending the maturity and reducing interest costs. In return, some lenders required timely settlement using tripartite agreements that directed revenue of certain estates directly for debt servicing. The company said it is now up to date on all restructured obligations.

Untested Funding Access, Weak Liquidity: Kotagala is in discussions with banks for new credit facilities following the completion of its debt restructuring, but its ability to meaningfully access external funding remains untested. We project negative free cash flow (FCF) of around LKR110 million in FY24 after the payment of LKR390 million in past-due statutory obligations and annual replanting capex of LKR109 million. Kotagala will face close to LKR700 million in near-term debt maturities in the next 12 months and it will need access to external financing to meet its obligations.

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