Fitch Ratings has affirmed Sir Lanka Telecom PLC’s (SLT) National Long-Term Rating at ‘AA-(Ika)’. The Outlook is Stable. Fitch has also affirmed the ‘AA-(Ika)’ national rating on the company’s LKR 7 billion of senior unsecured debt.
SLT’s ratings are constrained by the sovereign’s ratings as per Fitch’s Government-Related Entities Rating Criteria, as the state holds a majority stake in SLT directly and indirectly, and exercises significant influence on its operating and financial profile.
SLT’s unconstrained standalone credit profile is stronger than that of the government of Sri Lanka, reflecting the company’s market leadership in fixed-line services and second-largest position in mobile, its ownership of an extensive optical-fiber network, and a solid financial profile.
KEY RATING DRIVERS
Constrained By Sovereign: SLT’s ratings are constrained by the sovereign’s, as the state holds a majority stake in SLT directly and indirectly, and exercises significant influence on its operating and financial profile. SLT’s second-biggest shareholder, Malaysia’s Usaha Tegas Sdn Bhd with a 44.9% stake, has no special provisions in its shareholder agreement to dilute the government’s significant influence over SLT.
Strong State Linkages: Fitch sees SLT’s status, ownership and control by the Sri Lankan sovereign as ‘Strong’. The state’s ownership gives it significant influence over operating and financial policies. We view the support track record and likelihood of future state support for SLT as ‘Strong’, given its strategic importance in expanding the country’s fibre infrastructure. Historically, SLT has not required tangible financial support due to its healthy financial profile.
State’s Incentive to Support: Fitch sees the socio-political implications of a default by SLT as ‘Moderate’ due to the presence of other privately owned telcos. However, it could affect the fixed-line market because SLT acts as a policy company to invest in fibre networks across the island to support the government’s vision of fibre-based internet for all households. Fitch also sees the financial implications of a default as ‘Strong’, as a financial default by SLT may reduce the availability and increase the cost of financing options for other government-related entities.