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

Oct 20, 2020 (LBO) – Fitch Ratings has affirmed the National Long-Term Ratings of Sri Lanka-based conglomerate, Melstacorp PLC, and its subsidiary, Distilleries Company of Sri Lanka PLC (DIST), at ‘AAA(lka)’. The Outlook is Stable.

Fitch rates DIST, which is the stronger of the two entities, based on the consolidated profile of Melstacorp due to strong operational and modest legal linkages between the two entities, as defined in our Parent and Subsidiary Linkage Rating Criteria. DIST contributes around 70% to Melstacorp’s consolidated EBITDA, shares the same board of directors and Melstacorp has unrestricted access to DIST’s cash flows.

The affirmations reflect the group’s ability to maintain leverage comfortably below the 4.5x negative rating sensitivity over the medium term, despite the coronavirus pandemic-led economic downturn, due to strong cash flows from its resilient spirits business. However, Melstacorp’s rating could come under pressure if the impact of the pandemic intensifies, leading to further lockdowns and stricter social distancing requirements, which would have a negative impact on its beverage segment cash flows.

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