Fitch downgrades Sri Lanka Telecom's rating to 'B+'; Outlook stable

Fitch Ratings has downgraded Sri Lanka Telecom Plc's (SLT) Long-term foreign currency Issuer Default Rating (IDR) to 'B+' from 'BB-' (BB minus), following a similar downgrade of Sri Lanka's foreign currency IDR.

At the same time, the agency has affirmed SLT's Long-term local currency IDR at 'BB-' (BB minus), as well as its National Long-term rating at 'AAA(lka)'. The Outlook is Stable. The rating on SLT's senior-unsecured notes due in 2009 has been downgraded to 'B+' and a recovery rating 'RR4' has been assigned to the notes.

The company's local currency IDR and its National Long-term rating continue to reflect its stand-alone business and financial profile, despite the 49.5% ownership of the Government of Sri Lanka (GoSL, local currency IDR: 'B+') and its significant influence over SLT's financial and operating policies through majority board representation.

However, Fitch cautions that any action by the GoSL which is detrimental to the financial profile of SLT could result in a negative rating action on the company's local currency IDR and its National Long-term rating.

Fitch emphasises that the exit of Japan's NTT Corporation (NTT, 'AA minus' (AA minus)/Stable) is not a factor in the downgrade of SLT's rating. NTT divested its 35.2% stake in SLT on 2 April 2008 to Usaha Tegas Sdn Bhd (UT), a major shareholder of Maxis Communications Berhad of Malaysia.

UT has made a mandatory offer to the other shareholders of SLT. Fitch understands that the new shareholder and GoSL will decide on the composition of the board of directors as well as management positions following the conclusion of the mandatory offer.