Fitch, S&P issue rating on SriLankan Airlines’ proposed $ 175 m guaranteed dollar bonds

Fitch Ratings has assigned SriLankan Airlines Ltd.’s (SLA) proposed issue of dollar government-guaranteed bonds an expected rating of ‘B(EXP)’.

The proceeds of the issuance will be used to refinance the company's $ 175 million bond due 27 June. 

The final rating is contingent upon the receipt of final documents conforming to information already received.

The proposed 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 its 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 through direct and indirect holdings.

Fitch has rated SLA's 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 ratings of the proposed 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

In a related development S&P Global Ratings also assigned its ‘B’ long-term issue rating to the proposed dollar-denominated bonds due 2024 by SLA. The rating on the bonds is equalised with the long-term foreign currency sovereign credit rating on Sri Lanka (B/Stable/B), and is based on the timely, unconditional, and irrevocable guarantee by the Government.

“The obligations of the Government as guarantor under the guarantee for the bonds constitute unsecured and unsubordinated obligations of the guarantor, and shall, at all times rank at least equally with all its other present and future unsecured and unsubordinated obligations, save for the exceptions as may be provided by applicable legislation and subject to the deed of guarantee,” it said.