Fitch Ratings Lanka is reviewing Aitken Spence's (ASP) senior unsecured notes' 'AA(lka)' National Long-term rating following the announcement of the groups participation in the south container terminal development project in Colombo port, a statement said.
Fitch said it is seeking further information on the amount of investment and its funding, coupled with the information on project cash flows and dividend inflows to ASP when the terminal commences operations in the 2014 financial year.
The company has not announced how its share of the investment would be financed.
Fitch said it notes that the terminal is estimated to cost 450 million US dollars (50 billion rupees), and expects that Aitken Spence will have to infuse up to 4.5 billion rupees into the project company for its 30 percent stake.
" . . . there is a possibility of a negative rating action if ASP's investment in the terminal project is largely funded by increased debt borrowings at the holding company," Fitch Ratings said.
In addition to the possible impact on ASP's credit metrics due to the investment, there is a structural subordination risk for ASP's creditors from the company's participation as a minority with a 30 percent stake in the terminal company and due to prior-ranking senior debt raised at the project level, it said.
The container terminal project, by Aitken Spence and China Merchant Holdings International, the main partner, is expected to take about 30 months to be completed.
"Any dividends that ASP can expect to receive thereafter depend on the free cash generation from the new terminal after debt servicing, which is subject to any restrictions on distributions of dividends," Fitch said.
As a holding company, ASP's ratings are largely driven by the cash flows it generates from dividend income from its investments.
Dividends from the hotels and leisure operations have been limited over the past few years and may continue to be so given the ongoing high investments in this sector, the rating agency said.
Fitch noted that there is potential for ASP's cash flows from its power generation operations to fall after power purchase agreements of two of its three generation plants are renegotiated on expiry of existing contracts in 2012 and 2013.
In the 2010 financial year, Aitken Spence's power generation operations contributed over 75 percent of its total dividends.
source - www.lbo.lk
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