Fitch Ratings has assigned a final 'B' rating to SriLankan Airlines Limited's (SLA) USD175 million government-guaranteed 7% unsecured bonds due 25 June 2024. The final rating on the bonds is in line with the expected rating assigned on 19 June 2019, and follows the receipt of final documents conforming to information received earlier.
The issuance proceeds were used to repay the company's USD175 million bond due 27 June 2019.
KEY RATING DRIVERS
The 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 the sovereign's 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
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.
The rating of the 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.
The rating on SLA's bonds is derived from the rating of an entity covered by a group that does not assign Recovery Ratings. As a result, no Recovery Rating was assigned to SLA's bond.
DATE OF RELEVANT COMMITTEE
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The rating of SLA's government-guaranteed bond is linked to the credit quality of the Sri Lanka sovereign, the guarantee provider. A change in Fitch's assessment of the credit quality of the Sri Lanka sovereign would automatically result in a change in the rating on SLA's government-guaranteed bond. Any change in Fitch's view on the contract of guarantee, or deterioration of the credit quality of the counterparties may result in a downgrade to the notes.