Fitch Ratings has placed Melsta Regal Finance Ltd’s (MRF) National Long Term Rating of ‘A+(lka)’ on Rating Watch Negative (RWN).
KEY RATING DRIVERS
The rating action follows Fitch’s placement of the ‘AAA(lka)’ rating on previous ultimate parent Distilleries Company of Sri Lanka PLC (DIST) on RWN. DIST, a leading domestic alcoholic beverage manufacturer, is undergoing a restructuring that will result in Melstacorp (MC) becoming the holding company for the group and DIST becoming a wholly owned subsidiary of MC. For more details, see Fitch Places Distilleries Company of Sri Lanka on Rating Watch Negative dated 28 September 2016.
MRF’s rating will continue to be driven by Fitch’s expectation of institutional support as we assess its intrinsic credit profile as considerably weaker than that indicated by its current rating. The RWN reflects Fitch’s assessment that MC’s ability to provide support to MRF under the new corporate structure could be weaker. This is because DIST’s financial profile could weaken as indicated by the RWN and MC, as a holding company, would rely on dividends from DIST.
MRF’s rating would be affirmed and removed from RWN if Fitch’s opinion on institutional support to MRF remains unchanged. For example, MC’s propensity to provide support to MRF may strengthen once the Melsta brand is successfully established, which could offset its potentially weaker ability to provide support to MRF.
The RWN could result in a downgrade of MRF if DIST is downgraded, or Fitch assesses MC’s ability to provide support as being weaker than that of DIST while its propensity is the same as DIST’s.
The resolution of the RWN will depend on the resolution of the RWN on DIST and the ability of Fitch to form an opinion of the restructuring’s full impact on MC’s credit profile. This could extend beyond the typical six months if the restructuring and the necessary approvals are delayed.