Fitch affirms Sri Lanka Telecom’s IDR at ‘B’, withdraws ratings | Sunday Observer

Fitch affirms Sri Lanka Telecom’s IDR at ‘B’, withdraws ratings

Fitch Ratings has affirmed Sri Lanka Telecom PLC’s (SLT) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at ‘B’. The Outlook is Stable. The agency has simultaneously withdrawn the ratings for commercial reasons.

The ratings were withdrawn for the following reasons for commercial purposes:

Prior to the withdrawal, SLT’s IDRs were constrained by Sri Lanka’s IDRs of ‘B’ 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 provisions to dilute the government’s significant influence over SLT.

Fitch notes SLT’s status, ownership and control by the Sri Lankan Sovereign as ‘Strong’.

Historically, SLT has not needed tangible financial support due to its healthy financial profile.

Fitch notes the socio-political implications of a default by SLT as ‘Moderate’ due to the presence of three other privately owned telcos.

We expect SLT to have negative free cash flow (FCF) during 2019- 2020 (estimated 2018 negative FCF of Rs. 2-3 billion) as cash flow from operations may be insufficient to fund large capex plans.

We expect SLT to continue to invest in expanding fibre coverage as it aims to connect about one million homes by 2020-2021, from the 70,000 homes currently enabled. We expect SLT’s fibre investments to have low returns due to the country’s low broadband tariffs.

We believe the recently announced merger between Hutchison Telecommunications Lanka (Private) Ltd and Etisalat Lanka (Private) Ltd is likely to relieve some competitive pressures.

Fitch’s outlook for the Sri Lankan telco sector is stable.