Fitch affirms SriLankan Airlines Govt. guaranteed Bonds at 'B+'

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

Key rating drivers

The airline's bonds are rated at the same level as SLA's parent, the Government of Sri Lanka (GoSL; B+/Negative) due to the unconditional and irrevocable guarantee provided by the Government. GoSL held 99.5% of SLA as at end-2016 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.

Rating sensitivities

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

nA downgrade of the sovereign rating

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

nAn upgrade of the sovereign rating

For the sovereign rating of Sri Lanka, the following sensitivities were outlined by Fitch in its Rating Action Commentary of 29 February 2016.

The Negative Outlook reflects the following risk factors that could, individually or collectively, result in a downgrade of the ratings:

nA further increase in external vulnerability driven by a sustained decline in FX reserves reflecting, for instance, reduced international market access and/or a sudden reversal in portfolio inflows.

nA further deterioration in policy coherence and credibility that widens macroeconomic imbalances and/or heightens external vulnerabilities.

nContinued fiscal slippage resulting in a failure to stabilise the general Government debt ratio.

The main factors that could, individually or collectively, lead to a revision of the Outlook to Stable are:

nImplementation of a predictable and robust policy framework leading to a reduction in risks to basic economic and financial stability.

nImprovement in Sri Lanka's public finances underpinned by a credible medium-term fiscal consolidation strategy, including a broadening of the general Government revenue base.

nSustained smaller current-account deficits with higher levels of non-debt capital inflows (FDI) and an increase in foreign exchange reserves.