Court ruling unlikely to affect SLT's AAA(sri) rating

Fitch Ratings Lanka Limited ("FRL") said the recent tariff ruling by the Sri Lanka courts requiring Sri Lanka Telecom ("SLT", rated 'AAA(sri)', Outlook Stable) to revert back to pre-September 2003 tariffs with retrospective effect, is unlikely to have any near-term effect on the credit ratings or rating Outlook of the company.

In September 2003, the Telecommunications Regulatory Commission of Sri Lanka ("TRC") approved a revision of SLT's tariff structure. This marked the fifth and final stage of tariff rebalancing as per the shareholders agreement between the Sri Lankan Government and NTT Communications ("NTT"), which was intended to progressively reduce the subsidy of domestic call charges to ILD charges. The rebalancing exercise commenced in 1998 and was to be completed in five annual steps by August 2002.

The judgment on the fifth tariff revision was delivered by a Court of Appeal on July 25 in relation to a case filed by the Consumer Association of Lanka. The court ruled to invalidate approvals granted by the TRC, thereby necessitating the refund of incremental billings from September 2003 by SLT. SLT has subsequently sought to appeal the ruling in the Supreme Court of Sri Lanka and the agency believes that it may take a year or more before a decision is handed down.

However, in the event that the ruling is upheld by the Supreme Court and presuming SLT is ordered to make payment in 2005, FRL notes that a one-time charge of LKR 4.5bn would cause the company's leverage metrics for FY05 to weaken slightly, but nevertheless remain comfortable for the current rating level.