Nov 19, 2007 (LBO) – The piercing of the sovereign ceiling by a Sri Lankan telco has raised hopes of better credit ratings for the country’s top companies, which have been saddled with junk ratings due the parlous state of the government’s own finances. Last week, S&P upgraded the credit rating of Sri Lanka Telecom (SLT), which runs the island’s only wireline telco and also owns a mobile firm, a notch above the sovereign rating to BB-.
This propelled SLT in to an elite five percent of rated private firms that have a credit rating above that of the sovereign. According to the International Monetary Fund, 79 percent of firms have ratings below the sovereign and 15 percent have the same ratings.
Rating agencies usually do not issue credit ratings to firms above the government rating, because when a sovereign defaults, it can impose exchange controls which affect private firms. This gave rise to the so-called implied ‘sovereign ceiling.’
Rating agencies broke the rule in 1997 by upgrading ratings of companies in ‘dollarized’ countries. A dollarized country does not have its own currency but uses the currency of a low inflation foreign country.
A dollarized country therefore does not have a central bank whic