Fitch rates SriLankan Airlines proposed guaranteed USD bonds ‘B(EXP)’

Jun 19, 2019 (LBO) – Fitch Ratings has assigned SriLankan Airlines Limited’s (SLA) proposed issue of US dollar government-guaranteed bonds an expected rating of ‘B(EXP)’.

The proceeds of the issuance will be used to refinance the company’s 175 million dollars bond due 27 June 2019.

The final rating is contingent upon the receipt of final documents conforming to information already received.

KEY RATING DRIVERS

The proposed bonds are rated at the same level as the bonds issued by SLA’s parent, the government of Sri Lanka (B/Stable), due to the unconditional and irrevocable guarantee provided by the government. The government’s bonds are, in turn, rated in line with its Long-Term Issuer Default Rating (IDR) of ‘B’. The payment obligations arising under the guarantee rank pari passu with all other present and future, unconditional, unsecured and unsubordinated obligations of the government. The state held 99.5% of SLA as of end-May 2019 through direct and indirect holdings.

DERIVATION SUMMARY

Fitch has rated SLA’s US dollar bonds at the same level as the sovereign rating due to the unconditional and irrevocable guarantee provided by the government. The rating is not derived from SLA’s standalone credit profile and thus is not comparable with that of its industry peers.

RATING SENSITIVITIES

The ratings of the proposed bond would be sensitive to any changes in Sri Lanka’s Long-Term IDR.

Developments that May, Individually or Collectively, Lead to Positive Rating Action

  • An upgrade of the sovereign Long-Term IDR

Developments that May, Individually or Collectively, Lead to Negative Rating Action

  • A downgrade of the sovereign Long-Term IDR

For the sovereign rating of Sri Lanka, the following sensitivities were outlined by Fitch in its Rating Action Commentary of 3 December 2018

The main factors that individually, or collectively, could trigger a positive rating action are:

  • Improvement in external finances supported by higher non-debt inflows, or a reduction in external sovereign refinancing risks from an improved liability profile
  • Improved policy coherence and credibility
  • Stronger public finances underpinned by a credible medium-term fiscal strategy

The main factors that, individually or collectively, could trigger negative rating action are:

  • Further increases in external funding stresses that threaten the ability to repay external debt
  • Continued political uncertainty that contributes to a loss of investor confidence, possibly affecting the macroeconomic outlook
  • A deterioration in policy coherence and credibility that leads to an increase in general government debt and deficit levels.