Fitch affirms Sri Lanka Telecom at 'BB-'
By BFN News | 08:01 AM | Friday 30 March, 2012
Fitch Ratings has affirmed Sri Lanka Telecom's long-term foreign-currency and local-currency issuer default ratings at 'BB-' and its national long-term rating at 'AAA(lka)'.
The outlook is stable.
SLT's issuer default ratings are constrained by the respective sovereign IDRs of 'BB-'.
This is principally due to the government of Sri Lanka owning, directly and indirectly, over 51% of SLT and the absence of any explicit shareholder arrangement between the government and SLT's 44.9% shareholder - Malaysia's Usaha Tegas - that could potentially dilute the state's influence over SLT's operations.
Any future change in the sovereign ratings will lead to a corresponding change in SLT's ratings.
SLT's unconstrained ratings reflect its market-leading position in Sri Lankan fixed-line (aggregate of wireline and code division multiple access) and broadband sectors and its second position in the country's mobile segment.
SLT's ratings have high headroom due to its existing conservative credit profile, with 2011 funds flow from operations (FFO) adjusted net leverage and operating EBITDAR margins flat at 0.2x and 33%-34%, respectively, and its comfortable access to liquidity.
Fitch, however, expects SLT's credit metrics to deteriorate in 2012-13 due to the company's plan to invest in fibre-to-the-node infrastructure, greater mobile capacity in the Western Province, and coverage improvements in northern Sri Lanka.
Fitch expects capex as a percentage of sales to remain high at about 40% in 2012-13, resulting in negative free cash flow and higher FFO adjusted net leverage in the medium term.
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