Sept 15, 2010 (LBO) - Standard & Poor's Ratings Services has raised the long-term local currency corporate credit rating on Sri Lanka Telecom (SLT) to 'BB-' from 'B+' with a stable outlook, a statement said.
At the same time, Standard & Poor's confirmed the 'B+' long-term foreign currency corporate credit rating on the company and revised the rating outlook to stable from positive.
The rating actions on SLT reflect the rating action by Standard & Poor's on the sovereign credit rating on Sri Lanka, the rating agency said.
On Tuesday, Standard & Poor's raised its long-term foreign currency sovereign credit rating on Sri Lanka to 'B+' from 'B', and the long-term local currency rating to 'BB-' from 'B+' with a stable outlook on both.
"The credit profile of SLT is driven by Sri Lanka's country and macroeconomic risk, the company's significant capital expenditure plans, and its weak operating performance stemming from intense competition," said Standard & Poor's credit analyst Mehul Sukkawala.
The country and macroeconomic risk has been reducing because of favorable GDP growth prospects, given the positive impetus of the end of the 30-year ethnic war in May 2009.
"We expect Sri Lanka's medium-term GDP growth at 6.5-7.5 percent per year, with upside potential if the low interest rate environment is maintained and planned improvements to the business environment are implemented," S&P's said.
"We expect the good economic growth prospects, along with the telecom regulator implementing floor price to control price-based competition, to ease the pressure on SLT's operating performance."
Sukkawala said SLT's "modest" debt continues to support the ratings, and has resulted in "strong financial metrics".
"We expect the company to fund its large capital expenditure plans primarily through internal cash flows."
The company has a debt-to-EBITDA ratio of less than 1.0x, funds from operations-to-total debt ratio of more than 50 percent, and a debt-to-capital ratio of less than 30 percent.
SLT's cash flow generation is significant, given the company's leading market position in the fixed-line business and its growing market share of the wireless business, S&P's said.
"In addition, we view the company's liquidity as adequate," it said.
"The stable outlook on the local currency rating reflects our expectation of stable operating performance and cash flow generation at SLT. The stable outlook on the foreign currency rating reflects the stable outlook on the sovereign foreign currency rating on Sri Lanka."
source - www.lbo.lk
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