Fitch affirms SLT at ‘B+’; Revises outlook to positive

Fitch Ratings affirmed Sri Lanka Telecom Plc’s (SLT) foreign currency issuer default rating (IDR) at ‘B+’ and revised its Outlook to Positive from Stable.

The agency has simultaneously affirmed SLT’s local currency IDR at ‘BB-’ and revised its Outlook to Stable from Negative. SLT’s National Long-term rating has been affirmed at ‘AAA(lka)’ with a Stable Outlook.

The revision of the Outlook on SLT’s ‘B+’ foreign currency IDR reflects a similar change to the Outlook of Sri Lanka’s foreign currency IDR on 21 September 2010, as SLT’s stand-alone credit profile is constrained by the sovereign.

The revision of the Outlook on SLT’s LC IDR to Stable from Negative is based on improvements observed in Sri Lanka’s macroeconomic conditions following the end of the civil war, and from a moderation of the heavy price-based competition among telecom operators after regulatory intervention on tariffs.

These are expected to stem the fall in SLT’s operating margins.

SLT’s ratings continue to reflect its established position as an integrated telecom operator with strong market shares in major operating segments backed by strong infrastructure.

Although profitability has suffered since 2007 - EBITDA to sales has fallen to around 30 percent at present from 45 percent in 2007 - SLT continues to generate a significant amount of cash from operations.

SLT is yet to fully secure external funding for its capex program; however, given its strong access to the bank loan market, Fitch does not expect capex funding or liquidity to be an issue.