Sri Lanka’s EAP Broadcasting rated ‘BBB’ by RAM

Sept 10, 2013 (LBO) – Sri Lanka’s EAP Broadcasting Company Ltd (EAPB), has been rated ‘BBB’ by RAM Ratings which said the firm was planning a billion rupee listed debenture sale. “The ratings are upheld by the Company’s notable presence in TV industry,” RAM Ratings said.

“EAPB has one of the largest television networks in Sri Lanka in terms of viewership, with a strong coverage island-wide.”

The company was earlier known as EAP Networks Ltd.

The full statement is reproduced below:

RAM Ratings Lanka assigns BBB/P3 corporate credit ratings to EAP
Broadcasting Company Limited

RAM Ratings Lanka has assigned EAP Broadcasting Company Limited (“EAPB” or “the
Company”), formally known as EAP Networks (Pvt) Ltd respective long- and shortterm
corporate credit ratings of BBB and P3.

Concurrently, a long-term rating of BBB
has been assigned to EAPB’s proposed LKR 1 billion Listed Senior Secured
Redeemable Debentures (2013/2018). Both long-term ratings carry a stable outlook.

EAPB is a leading media investment company with interests in a broad spectrum of
electronic media such as free-to-air (“FTA”) television broadcasting and radio
broadcasting in Sri Lanka.

The ratings are upheld by the Company’s notable presence in TV industry. EAPB has
one of the largest television (“TV”) networks in Sri Lanka in terms of viewership, with
a strong coverage island-wide.

The Company owns and operates Swarnavahini – a
premier TV channel broadcasted in the Sinhala language. The Company’s viewership
in 2012 stood at 14.30%, compared to the 15.40% held by the leading private TV
broadcaster. EAPB’s viewer ratings were mainly upheld by its news and teledrama
broadcasts.

Meanwhile, the ratings are also upheld by EAPB’s adequate debt-protection metrics.
EAPB’s debt protection metrics are deemed adequate, despite its increasing debt load.
Its funds from operations (“FFO”) debt coverage had improved to 1.08 times as at
end-March 2013 from 0.74 times previously. However, debt-funded expansion is
envisaged to erode the Company’s FFO debt coverage to 0.45 times in FY Mar 2014.
Nevertheless, we expect the ratio to still compare better to that of similar-rated
peers.

However, we note the Company is susceptibility to economic cyclicality. The
Company’s revenue mainly stems from advertising expenditure (“adex”) and closely
reflects TV industry adex, which in turn is highly correlated to the country’s economic
cycle. Advertisers tend to reduce adex spending in the event of economic volatility.
Given that TV is a more expensive advertising medium, TV adex is highly susceptible
to economic cyclicality.

Furthermore, the Company’s working-capital requirements increased owing to the
weakening in the receivables cycle which clocked in at 140 days as at end-March
2013. This was largely owing to a slowdown in corporate adex as a result of adverse
economic conditions. However, we derive comfort from the Company’s adequate
liquidity position to cater to its working capital requirements.