Business

Sri Lanka’s Lion Brewery ‘AAA(lka) rating confirmed by Fitch, tax hike expected

Saturday October 2, 2021 7:34 pm

ECONOMYNEXT – Fitch Ratings has confirmed an ‘AAA(lka)’ rating of Sri Lanka’s Lion Brewery on strong balance sheet, despite expectations of a tax hike on beer and recent lockdowns.

The outlook is stable.

“This reflects Lion’s strong balance sheet that acts as a buffer against further operating disruptions and a weak consumer environment in the next 12 months,” the rating agency said.

“We expect a strong rebound in operating cash flow due to the gradual lifting of Covid-19-related movement restrictions, and believe Sri Lanka’s rising vaccination rates support shorter periods of lockdowns.

“Lion has significant rating headroom to weather even more prolonged disruptions to its operations in the next 12-18 months, due to a strong balance sheet.

Sri Lanka’s rulers hired 53,000 unemployed graduates into an already bloated workforce last year after cutting taxes in 2019, and printed large volume of money triggering the worst balance payments deficits in history.

In an upcoming budget taxes and expected to be raised with salaries and pensions being the largest expenses.

“Fitch expects the government to increase duties on alcoholic beverages towards the end of 2021, due to weak finances,” the rating agency said.

After printing money, the state driven by Mercantilist ideology slammed import controls despite warnings on classical economics principles that money is fungible and will flow into areas favoured by the ruling class and bureaucrats.

“Fitch does not foresee severe import disruptions for Lion, which remains a key source of government tax revenue,” the rating agency said

“This view was reiterated by a Central Bank of Sri Lanka statement in June 2021 that underscored the need to prioritise imports of capital and intermediate goods.”

As predicted intermediate goods imports hit 6.93 billion rupees by July 2021, 6.5 billion dollars in pre-pandemic 2019.

The full statement is reproduced below:

Fitch Affirms Lion Brewery at ‘AAA(lka)’; Outlook Stable

Fitch Ratings – Colombo – 01 Oct 2021: Fitch Ratings has affirmed Sri Lanka-based Lion Brewery (Ceylon) PLC’s National Long-Term Rating at ‘AAA(lka)’. The Outlook is Stable.

This reflects Lion’s strong balance sheet that acts as a buffer against further operating disruptions and a weak consumer environment in the next 12 months. We expect a strong rebound in operating cash flow due to the gradual lifting of Covid-19-related movement restrictions, and believe Sri Lanka’s rising vaccination rates support shorter periods of lockdowns.

Lion’s rating is underpinned by its market leadership in the Sri Lankan beer industry, which is protected by high entry barriers stemming from the licensing requirements and a ban on media advertising, well-established brand and extensive retail and distribution network.

KEY RATING DRIVERS

Significant Rating Headroom: Lion has significant rating headroom to weather even more prolonged disruptions to its operations in the next 12-18 months, due to a strong balance sheet.

Fitch expects Lions leverage to remain below 1.0x in the medium term (end-June 2021: 0.2x), even after factoring in muted revenue growth in the financial year ending 31 March 2022 (FY22) and a decline in the EBITDA margin due to challenges in passing through cost inflation amid a weak operating environment.

Higher Working Capital: We have factored in a lengthening of Lion’s cash conversion cycle to 110 days over FY22-FY23 (FY21: 90 days) to account for the possibility of slower receivables collection, and buffer stocks of raw material imports as a contingency measure because of the country’s challenging import environment. We have also conservatively assumed that Lion will pay almost all of its pre-dividend free cash flow as dividends, against around 17% net-income dividend payout over FY19-FY21.
Manageable Import Disruptions: Lion has not seen any severe disruptions to date when importing raw materials. The company has also managed to secure its commodity requirements for FY22. Fitch does not foresee severe import disruptions for Lion, which remains a key source of government tax revenue. This view was reiterated by a Central Bank of Sri Lanka statement in June 2021 that underscored the need to prioritise imports of capital and intermediate goods.

Excise Tax Increase Likely: Fitch expects the government to increase duties on alcoholic beverages towards the end of 2021, due to weak finances. We believe further tax increases over the rating horizon of FY22-FY25 will be gradual, as the industry is important to government revenues. Excise duties from alcoholic-beverage makers made up 10% of government tax revenue in 2020.
Fitch expects the current excise tax regime – where spirits are taxed higher per proof litre than beer – to be maintained over the medium to long term, as it encourages the consumption of drinks with lower alcohol content.

Sales Volume to Fall: Fitch expects Lion’s volumes to decline by 8% yoy in FY22 (FY21: down 3% yoy), due to pandemic related stresses weighing on Sri Lanka’s economic recovery. We expect strong beer sales volumes, with alcohol content of more than 8%, to decline by around 5%, against 25% for mild beers (with less than 5% alcohol). Strong beer volumes should be more resilient than mild beer as strong beer is mostly consumed off-premise. We expect mild beer to only recover meaningfully in late FY23, in line with our expectations for tourism.

Decline in the EBITDA Margin: We project Lions EBITDA margins based on gross revenue to fall by 70bp to 11.6% in FY22, owing to our expectation of lower volumes and cost escalations. The company also faces some foreign-currency risk on its imported inputs amid the country’s weak external finances. Lion is also exposed to rising freight rates given its import requirements. We believe Lion may absorb some of these cost escalations, as the prevailing environment remains weak for a complete pass-through of costs.

Parent-Subsidiary Linkage: Fitch notches Lion above the consolidated profile of its parent, Carson Cumberbatch PLC, due to its financial independence and presence of a large minority shareholder – Carlsberg Breweries A/S (BBB+/Stable), which owns 29% of Lion directly and indirectly.

We assess the linkages between Lion and Carson as weak, as defined in Fitch’s Parent and Subsidiary Rating Linkage Criteria. Lion has a stronger credit profile than Carson. The two companies operate as separate entities, with separate funding arrangements and liquidity management. There are also no cross-default clauses or cross-guarantees between the debt of the two entities.

DERIVATION SUMMARY

Lion is rated at the same level as leading conglomerate Melstacorp PLC (AAA(lka)/Stable), whose rating reflects a dominant market position in spirits, with a share of about 70% in the domestic alcoholic-beverage market, and strong free-cash-flow (FCF) generation. Melstacorp’s stronger FCF generation than Lion is counterbalanced by its more aggressive expansion and investment policy against Lion’s more conservative approach.

Fitch rates Lion and Hemas Holdings PLC (AAA(lka)/Stable) at the same level. Hemas has strong exposure to the defensive healthcare and consumer sectors, which contribute around 85% to its EBITDA, while catering to diversified end-markets. Meanwhile, Lion’s rating reflects its market leadership in the local beer industry, helped by high entry barriers. We expect Hemas to maintain leverage at the same level as Lion in the medium term.

Lakdhanavi Limited (AA+(lka)/Stable) is a Sri Lanka-based power generation company with exposure to engineering and construction of power-plant components, and operation and maintenance services. Fitch rates Lakdhanavi one notch below Lion to reflect its counterparty risk related to its exposure to Ceylon Electricity Board (AA-(lka)/Stable) and higher investment appetite, which may increase leverage.

Sunshine Holdings PLC (AA+(lka)/Stable) rating reflects its leading positions in defensive sectors. The sectors range from healthcare – where it imports and distributes pharmaceutical and surgical products – to fast-moving consumer goods, such as packaged tea retailing, and palm oil plantations, which benefit from a domestic shortage and local protectionist measures. We rate Sunshine one notch below Lion to reflect its smaller operating scale as well as the regulatory and commodity price risks associated with its healthcare and palm oil operations.

Lion, given its credit strengths, is rated higher than a number of large local banks, non-bank financial institutions (NBFIs) and insurance companies. These large financial institutions are more exposed to sovereign stress than Lion despite their individual credit strengths, due mainly to the substantial sovereign-issued securities held for regulatory reasons, and in the case of banks and NBFIs, their broader exposure to numerous sectors in the local economy.

KEY ASSUMPTIONS

Fitch’s Key Assumptions Within Our Rating Case for the Issuer:

– Net revenue to increase by 1.6% in FY22 due to our expectation of an increase in the selling price;

– The EBITDA margins on gross revenue to decline by 70bp to 11.6% in FY22 due to lower volumes and cost escalations. We expect a marginal recovery to 11.8% in FY23 on account of improving volumes;

– Excise duties for beer to rise by 10% in FY22, and then steady growth of 5% over FY23-FY25;

– Capex of LKR2.5 billion in FY22 to ease bottlenecks in the production process, and then LKR1.3 billon annually over FY23-FY25;

– In the absence of a publicly stated dividend policy, all pre-dividend FCF to be paid as dividends. This is also done to capture the risk of the parent extracting more than the average payout;

– Working capital outflow of around LKR800 million in FY22 as we have stressed the receivables collection days to capture the dampened operating environment. Inventory turnover days to remain in-line with end-FY21 levels as the company looks to build buffer stocks owing to market uncertainty.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

– There is no scope for an upgrade, as the company is already at the highest rating on Sri Lanka’s national rating scale.
Factors that could, individually or collectively, lead to negative rating action/downgrade:

– An increase in Lion’s leverage, measured as total debt net of cash/EBITDA, to over 5.0x for a sustained period;

– A decrease in EBITDA/interest coverage to less than 2.0x on a sustained basis;
– Stronger links with parent Carson, according to Fitch’s Parent and Subsidiary Linkage Rating Criteria, or weakening of the parent’s consolidated credit profile.

LIQUIDITY AND DEBT STRUCTURE

Comfortable Liquidity: Lion had LKR13.8 billion in cash and LKR6 billion in uncommitted and unused credit lines at end-June 2021, against debt maturities of LKR9.8 billion falling due in the next 12 months. This includes around LKR8 billion of working capital debt that we expect lenders to roll over in the normal course of business, given Lion’s healthy operations and business profile.

ISSUER PROFILE

Lion is Sri Lanka’s largest brewery with a strong distribution network of around 2,800 outlets across the island. In addition to its own brands, Lion also brews and markets Carlsberg branded beer.

Markets

Sri Lanka stocks close down 0.60-pct, dragged by HNB and LOLC

Friday November 13, 2026 3:28 pm

ECONOMYNEXT – Sri Lanka’s Colombo Stock Exchange closed down on Friday, CSE data showed, with the benchmark All Share Price Index moving down 0.60 percent.

The ASPI was down 133.22 points at 22,024.18, while the more liquid S&P SL20 was down 1.06 percent, or 67.55 points, at 6,298.02.

The ASPI ended the week up 784.53 points from last Friday.

Positive contributors to the ASPI were Dialog Axiata (up 0.40 percent at 50.20 rupees), Distilleries Company of Sri Lanka (up 0.52 percent at 58.30 rupees), Aitken Spence (up 3.60 percent at 151.00 rupees), Ceylon Tobacco Company (up 1.05 percent at 1,828.50 rupees), and LOLC Finance (up 1.96 percent at 5.20 rupees).

Hatton National Bank (down 1.88 percent at 403.75 rupees), Richard Pieris and Company (down 6.21 percent at 27.20 rupees), LOLC Holdings (down 2.17 percent at 405.00 rupees), Sampath Bank (down 1.91 percent at 154.00 rupees), and Singer (Sri Lanka) (down 2.40 percent at 77.30 rupees) were top negative contributors.

Market turnover was 3.23 billion rupees. Capital goods led turnover with 869.21 million rupees. (Colombo/Nov13/2026)

Economy

Sri Lanka MP slams budget speech for omitting Tamil national question

Friday November 13, 2026 2:56 pm

ECONOMYNEXT – A Sri Lanka legislator has voiced strong disappointment that the President’s budget speech failed to make a single mention of the Tamil national question.

“It is very unfortunate that in His Excellency the President’s speech, there has not been a single word mentioned about the Tamil national question. Not a single word,” Shanakiyan Rasamanickam said.

“A budget speech generally, is a policy direction of the government for the next year. The budget speech is not only a statement of the country’s fiscal position or the economy’s position. It is the country’s, the government’s, plan, or what the government plans to do the following year. That’s a policy statement.”

Former presidents would at least mention the Tamil question even if it was not resolved, he said.

Former President Ranil Wickremesinghe in his speech, in his policy statement, he would mention: “The Tamil national question must be resolved,” Rasamanickam said.

Former Presidents Maithripala Sirisena and Gotabaya Rajapaksa also mentioned that the national ethnic question must be resolved, he added.

“Every President, every country’s Head of State, in their policy statements, have acknowledged the fact that there is an unresolved national issue, the Tamil national question, that it needs to be resolved. Various governments have proposed various mechanisms; none of them have succeeded, but at least it was mentioned.”

This year’s budget made allocations for the Office of Missing Persons, and the Office of Reparations.

“But the domestic mechanism is a mechanism that the victim community has rejected. So you all are allocating money to a mechanism where the victim community is not going to be part of.”

Last year’s budget 1 billion was allocated to be spent on the Trincomalee and Jaffna airports.

“Where was that 1 billion for the Trincomalee and Jaffna airports spent last year?”

“The trajectory of this government, Honourable Deputy Speaker, is worrying to me. It’s really worrying to me. Because if the objective is to say that there is no Tamil national question, if the objective is to say that you all have resolved any ethnic issue that this country faced, then Honourable Deputy Speaker, then I think the Tamil people will teach this government a very, very, very harsh lesson in the future.” (Colombo/Nov13/2026)

Bonds & Forex

Sri Lanka sells extra Rs6.5bn Treasury bills after auction

Friday November 13, 2026 12:32 pm

ECONOMYNEXT – Sri Lanka has sold 6,500 million rupees of treasury bills offered on tap at an average rate of 9.95 percent, the public debt management office said, bringing the total of bills sold in the week to 85.562 billion rupees.

The issue offered 90 billion.

Total market subscription was 6.5 billion rupees.

The debt office sold a 12-month bill at 9.95 percent.

On Wednesday (11) the debt office raised 79 billion rupees of 3, 6 and 12 month bills after offering 90 billion.

The settlement date is November 13. (Colombo/Nov13/2026)

Construction and Real Estate

Access Engineering Sept quarter group net profit surges 200-pct to Rs4.75bn

Friday November 13, 2026 12:15 pm

ECONOMYNEXT — Sri Lanka’s Access Engineering PLC recorded a group net profit attributable to equity holders of Rs. 4.75 billion for the quarter ended September 30, surging 200 percent from Rs. 1.58 billion a year earlier, interim accounts showed.

Basic earnings per share rose to Rs. 4.08 for the September quarter, up from Rs. 1.58 previously.

Quarterly group revenue expanded 36 percent to Rs. 20.39 billion from Rs. 14.94 billion, underpinned by condominium property handovers — reflected in inventories dropping Rs. 7.69 billion since March to Rs. 35.71 billion — alongside strong automobile sales and steady civil engineering execution.

Cost of sales rose at a slower 27 percent to Rs. 14.34 billion, lifting gross profit by 64 percent to Rs. 6.05 billion and expanding gross margins to 29.7 percent from 24.7 percent.

Other income jumped 144 percent to Rs. 259.9 million, while administrative expenses rose 75 percent to Rs. 1.14 billion, leaving operating profit up 64 percent at Rs. 5.16 billion.

However, finance costs more than doubled, rising 107 percent to Rs. 1.18 billion on elevated group borrowings of Rs. 43.74 billion, partly offset by finance income climbing 302 percent to Rs. 42.2 million.

Share of results from equity-accounted investees rose 122 percent to Rs. 26.7 million, pushing pre-tax profit up 56 percent to Rs. 4.05 billion.

Income tax swung to a net reversal of Rs. 186.6 million from an expense of Rs. 804.1 million, boosted by deferred tax assets on unrelieved losses from a 100 percent enhanced capital allowance claimed by 60 percent-owned radiopharmaceutical subsidiary Access Medical Tracers (Private) Limited.

Total period profit rose 136 percent to Rs. 4.24 billion, with non-controlling interest declining 24 percent to Rs. 164.9 million following last year’s buyout of minority shareholders in Harbour Village (Private) Limited.

No separate exchange gain or loss was itemized in quarterly earnings, though foreign currency translation via associates recorded a Rs. 17.4 million loss in other comprehensive income, alongside USD 16.6 million in corporate guarantees.

Notes also flagged an expected Rs. 1.45 billion recovery from the terminated South Asia Commercial and Logistics Hub project, a Rs. 225 million post-quarter legal settlement already provided for, and a Supreme Court appeal over a 2011/12 PAYE tax ruling.

Group assets stood at Rs. 132.4 billion as of September 30, with net asset value per share at Rs. 46.70, as the Employees’ Provident Fund raised its stake to 5.69 percent.

Access Engineering shares closed at 80.00 rupees at the end of September and are currently trading around 85.80 rupees. (Colombo/Nov13/2026)

Economy

Sri Lanka private sector says timely implementation of Budget 2027 key

Friday November 13, 2026 11:43 am

ECONOMYNEXT – Private sector body, The Ceylon Chamber of Commerce, said it was encouraged by the broad direction of Budget 2027, noting that it reinforces Sri Lanka’s commitment to economic transformation while maintaining policy continuity, macroeconomic stability, and fiscal discipline.

“This continuity is particularly important as the country seeks to transition from economic stabilisation to a more durable, investment-led growth trajectory.”

The chamber also noted several areas where the Budget could have placed greater emphasis to strengthen the country’s growth prospects.

“In particular, there is a need for a stronger focus on attracting Foreign Direct Investment (FDI), accelerating factor market reforms, particularly in land and labour, and fast-tracking public procurement reforms to improve the efficiency and speed of project implementation.

“More targeted and actionable proposals could have been introduced to unlock the potential of sectors with significant growth opportunities, including tourism, agriculture, IT/BPO and logistics.”

The chamber said the budget contains positive measures aimed at enhancing competitiveness, and external sector resilience, while presenting opportunities for focus on sectors that can accelerate growth.

“A number of the key structural reforms identified in last year’s Budget have been carried forward and strengthened, providing greater certainty and predictability to businesses and investors.

“These include the continued implementation of the Trade National Single Window (TNSW), the phased removal of para-tariffs, the rollout of the Digital ID framework, efforts to expand market access through new Free Trade Agreements (FTAs), the strengthening of one-stop-shop investment facilitation mechanisms, progress on Customs reforms, the expansion of Bandaranaike International Airport (BIA), enhanced financing support for SMEs, and reforms relating to the management of State-Owned Enterprises.”

The CCC said that more than 20 proposals submitted by it have been reflected in Budget 2027.

These include measures to strengthen investor facilitation through the establishment of a professionally managed investment promotion agency; continued efforts to improve trade facilitation and export competitiveness; the Government’s consideration of a successor programme with the International Monetary Fund (IMF); accelerated progress on key legislative reforms; the expansion of digital government services; and the promotion of cashless payments and broader digital adoption. The Budget has also captured several priorities relating to energy security, including the accelerated deployment of Battery Energy Storage Systems (BESS) and investments in fuel storage infrastructure, initiatives to optimize underutilized agricultural land, measures to support the expansion of the digital economy and the IT/BPO sector, and tax reforms to support exporters, including the acceptance of newly VAT-registered exporters as eligible exporters.

“The inclusion of these priorities reflects the value of sustained public-private dialogue and demonstrates increasing alignment between national policy objectives and the needs of a competitive, export-oriented economy.

“The priority now must be effective and timely implementation to translate policy commitments into investment, competitiveness, exports and sustainable growth.” (Colombo/Nov13/2026)