Higher Grade

July 20, 2011 (LBO) – Fitch Ratings has upgraded Sri Lanka Telecom’s (SLT) long-term foreign currency rating to ‘BB-‘ from ‘B+ with a stable outlook. At the same time, Fitch confirmed its long-term local currency rating at ‘BB-‘ and national long-term rating at ‘AAA(lka)’.

The action follows Fitch’s upgrade of Sri Lanka’s sovereign long-term foreign and local currency ratings to ‘BB-‘ from ‘B+’ with a stable outlook.

Fitch said SLT’s foreign- and local-currency ratings are constrained by the respective sovereign ratings, and any future change in the sovereign ratings will lead to a corresponding change in SLT’s ratings.

This was mainly because the government of Sri Lanka owns, directly and indirectly, more than 51 percent of SLT.

Also Fitch noted the absence of any explicit shareholder arrangement between the government and SLT’s 44.9 percent shareholder, Malaysia’s Usaha Tegas, that could potentially dilute the government’s influence over SLT’s operations.

SLT’s ratings could also come under pressure if its net leverage exceeds 2.5 times on a sustained basis, the rating agency said.

“On the other hand, a substantial