Fitch affirms Melstacorp & Distilleries at ‘AAA(lka)’; outlook stable

Nov 04, 2019 (LBO) – Fitch Ratings has affirmed the National Long-Term Ratings of Sri Lanka-based conglomerate, Melstacorp, and its subsidiary, Distilleries Company, at ‘AAA(lka)’. The Outlook is Stable.

Fitch rates DIST based on the consolidated profile of Melstacorp due to strong legal and operational linkages between the two entities, as defined in our Parent and Subsidiary Rating Linkage criteria. DIST contributes around 70% to Melstacorp’s consolidated EBITDAR, shares the same board of directors and has previously provided financial support to weaker group entities in the form of corporate guarantees.

The affirmations reflect Melstacorp’s ability to maintain leverage below 2.
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0x over the medium-term, despite large investments in core and non-core operations. Leverage is defined as net adjusted debt/operating EBITDAR, including Melstacorp’s 51%-share of Aitken Spence PLC’s net debt and EBITDA, but excluding its insurance subsidiary. Melstacorp saw net leverage weaken to 1.8x in the financial year ending March 2019 (FY19), from 1.3x in FY18, following significant debt-funded investments.

The group’s investment drive is supported by the strong operating cash flow of its core subsidiary, DIST, which is Sri Lanka’s market leader in spirits, enjoying a strong brand presence and high entry barriers. We expect DIST to account for around 70% of Melstacorp’s group EBITDA, including its
51% share of Aitken Spence, over the medium-term. The ratings of Melstacorp and DIST could come under pressure if Melstacorp continues to make large debt-funded investments that dilute the cash-flow stability of its core spirits business or are not immediately cash-flow accretive.


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