Tele Outlook

Feb 18, 2008 (LBO) – Standard & Poor’s said it had cut the outlook on Sri Lanka Telecom (SLT), the island’s largest fixed operator, to ‘negative’ from stable after the country’s sovereign outlook was lowered last week. “SLT continues to benefit from modest debt and positive free cash flow generation from its core businesses,” S&P said Monday.

“Although there is no immediate impact on SLT’s credit profile and the company’s short-term liquidity is adequate, operating and funding risks could increase in the near to medium term given the country’s weakening economic and political conditions.”

SLT has a ‘BB-‘ long term rating, a notch higher than the country rating of ‘B-‘

S&P cut Sri Lanka’s sovereign rating Friday following concerns over high budget deficits and increasing short term foreign borrowings.

The rating agency said SLT was facing intensifying competition, a weak regulatory environment, and high capital expenditure needs.

But such weaknesses were offset by the firm’s “leading market position in the fixed-line business, growth potential in the wireless segment, and strong cash flow measures.

“The negative outlook on SLT reflects country risk factors and the business environment