Fitch affirms SriLankan Airlines’ Govt. guaranteed bonds at ‘B+’

Fitch Ratings has affirmed SriLankan Airlines Limited’s (SLA) US dollar-denominated Government guaranteed bonds at ‘B+’.

Key rating drivers

The National Carrier’s bonds are rated at the same level as its parent, the Sri Lankan state (B+/Stable), due to the unconditional and irrevocable guarantee provided by the State. The State held 99.5% of SLA at end-2017 through direct and indirect holdings.

Derivation summary

Fitch has rated SLA’s US dollar-denominated bonds at the same level as the sovereign due to the unconditional and irrevocable guarantee provided by the government. The rating is not derived from its issuer’s standalone credit profile and thus is not comparable to its industry peers.

Key assumptions: Not applicable.

Rating sensitivities

Developments that may, individually or collectively, lead to positive rating action

nAn upgrade of the sovereign rating

Developments that may, individually or collectively, lead to negative rating action

nA downgrade of the sovereign rating

For the sovereign rating of Sri Lanka, the following sensitivities were outlined by Fitch in its Rating Action Commentary of 9 February 2017.

The main factors that, individually or collectively, could trigger positive rating action are:

nContinued improvement in public finances underpinned by a credible medium-term fiscal strategy, including a broadening of the government revenue base.

nIncrease in foreign-exchange reserves supported by smaller current-account deficits and higher non-debt capital inflows.

The main factors that, individually or collectively, could trigger negative rating action are:

nDeterioration in policy coherence and credibility, leading to a loss of investor confidence, or a derailment of the International Monetary Fund supported programme that leads to external funding stress.

nReversal of fiscal improvements that leads to a failure to stabilise government debt ratios.

Liquidity: Not applicable.