Business

Sri Lanka Telecom on rating upgrade track on planned stake sale: Fitch

Tuesday March 28, 2023 3:12 pm

ECONOMYNEXT – Sri Lanka Telecom has been place on watch for a possible rating upgrade after the government, which has defaulted on its sovereign debt said it will sell down its majority stake.

“The rating reflects the potential rating upside due to weakening linkages with SLT’s parent, the government of Sri Lanka (Long-Term Local-Currency Issuer Default Rating: CC), due to the government’s plan to sell its 49.5 percent stake in the company,” the rating agency said.

“Fitch will resolve the RWP when the proposed disposal becomes practically unconditional, which
may take more than six months.”

The agency said it expect SLT’s revenue growth to slow to a low single-digit percentage in 2023 amid weakening consumer spending due to consumers increasingly prioritising essential needs, such as food and medicine, as real income has fallen significantly following the currency depreciation and unprecedently high inflation.

The full statement is reproduced below;

Fitch Places Sri Lanka Telecom’s ‘A(lka)’ Rating on Watch Positive

Fitch Ratings – Colombo – 27 Mar 2023: Fitch Ratings has placed Sri Lanka Telecom PLC’s (SLT) National Long-Term Rating of ‘A(lka)’ on Rating Watch Positive (RWP).

The RWP reflects the potential rating upside due to weakening linkages with SLT’s parent, the government of Sri Lanka (Long-Term Local-Currency Issuer Default Rating: CC), due to the government’s plan to sell its 49.5% stake in the company. Fitch will resolve the RWP when the proposed disposal becomes practically unconditional, which may take more than six months.

SLT’s ratings are currently constrained by its parent’s weak credit profile under Fitch’s Parent and Subsidiary Linkage (PSL) Rating Criteria. SLT’s Standalone Credit Profile (SCP) is stronger than that of the state, reflecting the company’s market leadership in fixed-line services, second-largest share in mobile, ownership of an extensive optical fibre network and a strong financial profile. The extent of SLT’s rating upside, following the proposed disposal, will depend on the credit profile of its new parent, the linkage strength with SLT according to our PSL criteria, and the proposed funding structure.

KEY RATING DRIVERS

Disposal Plan: SLT announced on 20 March 2023 that the Sri Lankan cabinet has granted in-principle approval to sell the 49.5% stake in SLT held by the state. The disposal is part of a plan to restructure state-owned entities (SOEs) to improve the state’s financial position. SLT said steps have yet to be taken to identify potential buyers and it will take at least eight to 12 months to finalise the transaction. We believe the government will push through the disposal as SOE restructuring is an integral part of the IMF’s financial support to Sri Lanka.

Sovereign Ownership Pressures Rating: We assess the legal ring-fencing and access and control between SLT and the state as ‘Open’ under the PSL criteria, given the absence of regulatory or self-imposed ring-fencing of SLT’s cash flow and the government’s significant influence over the subsidiary’s operating and financial profile. SLT’s second- biggest shareholder, Malaysia-based Usaha Tegas Sdn Bhd with a 44.9% stake, has no special provisions in its shareholder agreement to dilute the government’s influence over SLT.

Higher Rating: However, the PSL criteria allows for a stronger subsidiary to be notched above the weaker parent’s consolidated profile in extreme situations, such as when a parent is in financial distress but the subsidiary continues to operate independently and its banking access appears unaffected. We do not believe SLT is at risk of default in the next 12 months, as it has sufficient liquidity and its debt does not carry cross-default clauses that can be triggered by the parent’s distress.

SLT’s ‘A(lka)’ rating therefore reflects its relativities with national peers, but is still below its SCP due to the drag from state ownership. We apply our PSL criteria because our Government-Related Entities (GRE) Rating Criteria states that in cases where the SCP of the GRE is higher than the government’s IDR, the relevant considerations of the PSL criteria will be applied to determine whether the IDR of the GRE is constrained or capped at the government’s rating level.

Weak Demand in 2023: We expect SLT’s revenue growth to slow to a low single-digit percentage in 2023 amid weakening consumer spending. Consumers are increasingly prioritising essential needs, such as food and medicine, as real income has fallen significantly following the currency depreciation and unprecedently high inflation. SLT’s subscriber numbers and minutes of usage have already fallen in 2022. Competition has also intensified, especially in the mobile segment, leading to lower realisation of recently introduced tariff hikes.

Weak demand should be offset to an extent by increased migration to SLT’s fibre-to-the- home (FTTH) network, from its own copper network, and subscriber additions. FTTH carries higher revenue per user than the copper network. SLT had 475,000 FTTH connections, a 35% increase yoy, by end-2022.

Weakening Profitability: We expect SLT’s EBITDA margin to narrow to around 34% in 2023 (2022: 35.6%) amid lower demand and ongoing cost escalations. All telecom operators increased tariffs by 20%-25% in late 2022 to tackle falling margins. However, the realisation into revenue remains weak, especially in the mobile segment, due to deep price cuts by one of the smaller operators and falling demand. SLT’s fixed-line business is able to maintain stable EBITDA margins due to the recent tariff hike and the FTTH segment’s higher revenue per user.

Leverage to Stabilise: We expect SLT’s EBITDA net leverage to remain around 1.3x in 2023 (2021: 0.9x, 2022: 1.3x) amid falling profitability. However, its leverage is strong for the rating. We expect capex of around LKR25.0 billion annually over 2023-2024 on network upgrades and expanding its fibre infrastructure.

Interest-Rate Hikes, Currency Depreciation Manageable: We expect SLT to maintain its EBITDA interest coverage closer to 4.0x over 2023-2024 (2022: 4.4x) despite interest rates rising almost threefold. Most of SLT’s debt is on variable interest rates, which will raise costs. SLT’s foreign-currency revenue, which accounts for 10%-12% of group revenue, is more than sufficient to meet the group’s foreign-currency operating expenses and interest costs. SLT had around USD10 million in foreign-currency debt at end-
December 2022, compared with USD40 million in foreign-currency cash deposits.

Sector Outlook Deteriorating: Fitch expects the average 2023 net debt/EBITDA ratio for SLT and mobile leader Dialog Axiata PLC (AAA(lka)/Stable) to remain around 1.3x (2022: 1.3x) amid weak margins and high capex. We expect sector revenue growth to slow to 8% in 2023 (2022: 15%), while the average 2023 EBITDA margin for SLT and Dialog should narrow to 31% (2022: 32%) amid low usage and high costs.

DERIVATION SUMMARY
SLT’s SCP benefits from market leadership in fixed-line services and the second-largest position in mobile, along with ownership of an extensive optical fibre network. SLT has lower exposure to the crowded mobile market and has more diverse service platforms than Dialog. However, Dialog has a larger revenue base, lower forecast EBITDA net leverage and a better free cash flow (FCF) profile than SLT. Dialog is rated at ‘AAA(lka)’, while SLT’s rating is under pressure because of the state’s weak credit profile.

SLT has a larger operating scale than leading alcoholic-beverage manufacturer Melstacorp PLC (AAA(lka)/Stable), which distributes spirits in Sri Lanka through its subsidiary, Distilleries Company of Sri Lanka PLC (AAA(lka)/Stable). Melstacorp is exposed to more regulatory risk in its spirits business because of increases in the excise tax, but this is counterbalanced by its entrenched market position and high entry barriers.

Consequently, the company can pass on cost inflation and maintain its operating EBITDA margin, supporting substantially stronger FCF generation than SLT.

KEY ASSUMPTIONS

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

– Revenue growth to slow to 4% in 2023 amid falling subscriber numbers and lower usage due to weakening consumer spending;

– Operating EBITDA margin to narrow by 150bp to 34% in 2023 due to higher costs and lower volume;

– SLT to continue capex on expanding its fibre and 4G network with LKR25 billion spent annually in 2023 and 2024;

– Effective tax rate of 28% from 2023;

– Dividend payout of 33% of net income over 2024-2025

RATING SENSITIVITIES

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

– Fitch will resolve the RWP when the proposed disposal becomes practically unconditional, which may take more than six months, and once Fitch has sufficient information on the new majority shareholder’s credit profile and linkages with SLT and the proposed funding structure.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

– Fitch would remove the RWP and affirm the National Long-Term Rating at ‘A(lka)’ with a Stable Outlook if the proposed disposal does not proceed and the linkages with the state remain intact.

LIQUIDITY AND DEBT STRUCTURE

Manageable Liquidity: SLT’s unrestricted cash balance of LKR14 billion at end- December 2022 was sufficient to redeem its contractual maturities of around LKR11 billion. SLT’s short-term working-capital debt amounted to another LKR10.0 billion and we expect the company to roll over the facilities given its solid access to local banks.

Liquidity is further enhanced by about LKR15 billion in undrawn bank credit facilities, although these are uncommitted. SLT typically does not pay commitment fees on its undrawn lines, although we believe most banks will allow the company to draw down the funds because of its healthy credit profile.

Education

Sri Lanka transfers SAARC Cultural Centre in Matara to Ocean University

Tuesday October 20, 2026 4:32 pm

ECONOMYNEXT – Sri Lanka’s cabinet has approved the transfer of the SAARC Cultural Centre premises in Nawimana, Matara, to the Ministry of Education for the establishment of the Ocean University of Sri Lanka.

The property comprises an 11-acre plot of land with 200,000 square feet of partially completed building space. The premises will be repurposed to resolve accommodation challenges for the university, which currently lacks a single permanent campus.

“The Ocean University of Sri Lanka currently operates out of several rented premises, and this transfer will provide a dedicated facility for its academic programs,” minister Nalinda Jayatissa said.

The move follows a directive issued at a cabinet meeting held on June 1, 2026. At that meeting, ministers instructed the Secretary to the Ministry of Education, Higher Education, and Vocational Education to examine whether the buildings and premises could be utilized for educational or vocational training purposes.

Following that feasibility study, officials concluded that transferring the location to the Ocean University was the most suitable step to support higher education.

“It has been determined that it is appropriate to transfer the cultural centre premises to establish the Ocean University and expand training opportunities.”

The Ministry of Buddhasasana, Religious and Cultural Affairs has provided its concurrence for the handover of the property in Nawimana.

The transfer will allow the state to complete the existing buildings and provide the Ocean University with its own central campus, ending its practice of operating across several rented spaces. (Colombo/Oct20/2026)

Markets

Sri Lanka stocks close down; ASPI drops 0.38-pct

Tuesday October 20, 2026 3:36 pm

ECONOMYNEXT – Sri Lanka’s Colombo Stock Exchange closed down on Tuesday, CSE data showed, with the benchmark All Share Price Index moving down 0.38 percent.

The ASPI was down 75.64 points at 19,983.78, while the more liquid S&P SL20 was down 0.25 percent, or 13.98 points, at 5,686.77.

Positive contributors to the ASPI were C T Holdings (up 3.13 percent at 536.00 rupees), Namunukula Plantations (up 2.95 percent at 62.80 rupees), Industrial Asphalts (Ceylon) (up 20.00 percent at 0.60 rupees), John Keells Holdings (up 0.56 percent at 17.80 rupees), and ACL Cables (up 0.91 percent at 89.00 rupees).

Kotmale Holdings (down 4.50 percent at 1,146.00 rupees), Access Engineering (down 2.46 percent at 75.30 rupees), LOLC Holdings (down 2.27 percent at 398.75 rupees), Dialog Axiata (down 0.47 percent at 42.80 rupees), and Hatton National Bank (down 0.47 percent at 373.25 rupees) were top negative contributors.

Market turnover was 794.96 million rupees. The S&P/CSE Banks industry group led turnover with 250.97 million rupees.

Top crossings were recorded in Sampath Bank (138.00 million rupees), Melstacorp (57.55 million rupees), CAL Three Year Closed End Fund (53.52 million rupees), and Access Engineering (44.86 million rupees), according to Dewangi De Silva, Assistant Manager – Research at NDB Securities.

Vidullanka PLC announced the ceremonial commissioning of its 10 MW Ranna solar power project in Hambantota took place on Tuesday, following its grid connection on September 23 under a long-term Power Purchase Agreement with the Ceylon Electricity Board. The project is operated by DPV Solar Energy (Pvt) Ltd, a 50 percent joint venture alongside the David Peiris Group.

Meanwhile, Access Engineering PLC said shareholders have agreed to terminate the South Asia Commercial and Logistics Hub project, with the company anticipating a recovery of approximately 1.453 billion rupees from its total investment of roughly 1.762 billion rupees. (Colombo/Oct20/2026)

Energy

Sri Lanka probes nationwide blackout as coal plant trip destabilizes solar-heavy grid

Tuesday October 20, 2026 3:24 pm

ECONOMYNEXT – Sri Lanka’s island-wide blackout on Saturday, October 17, occurred after a coal power unit tripped during maintenance, exposing an electricity grid destabilized by nearly 1,700 megawatts of unmonitored renewable energy, Energy Minister Aruna Karunathilaka told parliament.

The government has launched an official inquiry through the Ministry Secretary to determine why risky maintenance was scheduled when electricity demand was low and renewable generation peaked.

“We have already questioned the relevant officials regarding why such risky maintenance was undertaken on a day when system demand was at a minimum, the sun was shining brightly, and large amounts of renewable energy were feeding into the grid,” Karunathilaka said.

Before the 11:43 am outage, the National System Operator managed 1,137 MW from controlled sources—516 MW of coal and 621 MW of hydro—alongside roughly 1,700 MW of unmonitored, predominantly solar power.

During maintenance on Unit 1 at the Norochcholai coal plant, a boiler diaphragm dislodged and ruptured, forcing the unit to trip for safety. The sudden loss caused system frequency to drop rapidly, triggering unmonitored renewables to trip offline faster than conventional plants could compensate and collapsing grid equilibrium.

“We can understand a single unit tripping. But how a failure in a single unit escalates into a collapse of the entire system is something we must thoroughly scrutinize,” Karunathilaka said, noting that under grid regulations, a single unit trip should never cause a national network to collapse.

Restoration began at 12:37 pm via the Kotmale plant, though out-of-sequence reconnections by external plants slowed progress. The high-voltage transmission grid was restored by 4:58 pm, and power was fully returned to all consumers by 9:56 pm, with priority given to hospitals, water treatment plants, and airports. Karunathilaka clarified that the Kotmale station had no connection to the initial failure.

During parliamentary debate, opposition lawmaker Ravi Karunanayake questioned why grid spinning reserves failed to prevent the blackout. Karunanayake argued that with total generation at 2,870 MW, a standard spinning reserve of 10 to 15 percent should provide a buffer of 280 to 425 MW, which ought to have easily absorbed a 175 MW drop from the coal unit.

A spinning reserve is unused electricity generating capacity that is already online, synchronized to the power grid, and capable of ramping up within seconds to minutes if an unexpected power loss occurs.

Karunanayake also alleged the boiler failure stemmed from burning substandard coal linked to a past coal procurement scam. He claimed the wider fallout resulted in an accumulated 56-billion-rupee economic loss, comprising 16 billion rupees in direct plant damages, 15 billion rupees in government subsidies, and 25 billion rupees in excess costs incurred from burning expensive emergency diesel.

Karunathilaka rejected both the substandard coal allegations and the loss estimate.

“The issue regarding coal quality occurred during the previous season. By September 4, almost all of that coal had been completely exhausted, and after September 4, what we have been using is new coal,” Karunathilaka said.

He explained that Unit 1 was completely overhauled and resumed operations on September 29 using only fresh coal.

Responding to the reserve issue, Karunathilaka stated that capacity at the Victoria hydro station functioned as the spinning reserve. However, the grid was vulnerable because roughly 2,000 MW of installed rooftop solar inverters were not configured to ride through frequency drops down to 47.5 Hz, causing them to trip offline. Recommendations from an EPRI study on grid inertia and spinning reserve criteria are now being implemented, he added. (Colombo/Oct20/2026)

General Services

Sri Lanka approves Rs15bn plan to revive Kolonnawa drainage project

Tuesday October 20, 2026 3:23 pm

ECONOMYNEXT — Sri Lanka’s cabinet has approved a revised plan to implement the remaining work of the Kolonnawa Stormwater Drainage and Environmental Improvement Project over three years at an estimated cost of 15,077.82 million rupees.

The Cabinet of Ministers approved the proposal presented by the Minister of Transport, Highways, and Urban Development to revive the stalled flood-mitigation scheme.

The project originally began several years ago to manage severe rainwater drainage in the area, but work suffered long disruptions.

“Although construction work commenced in 2019, the implementation of its components as originally planned was hindered by the COVID-19 pandemic in 2020 and the subsequent economic crisis,” the cabinet paper stated.

Following these setbacks, authorities prepared a fresh project plan and an updated cost estimate to carry out the remaining tasks across several core components.

Under the new plan, the government will complete ongoing construction on the 3,250-metre Salalihini Mawatha canal and build the 3,868-metre Dahamwela canal. It will also execute specialized tasks, including the construction of dedicated water retention ponds.

Work will also focus on upgrading existing waterways to improve water flow during heavy rainfall.

This includes rehabilitating the 4,475-metre Passanna Canal and the 650-metre Dandu Thota Canal, as well as repairing the Dandu Thota sluice gate. Authorities will also install three mobile pumps, each capable of pumping one cubic metre of rainwater per second.

In addition to physical civil works, the project allocates dedicated funding for social support and property takeover.

The plan covers the “acquisition of essential land plots within the project area, and the implementation of a compensation and relief package—estimated at 1,015 million rupees—for affected families, taking into account the potential impact on their daily livelihoods,” the cabinet note said.

The compensation package aims to protect residents whose daily income could be impacted while the three-year drainage improvement moves forward. (Colombo/Oct20/2026)

Investment

Sri Lanka Cabinet nods for PPP bill to boost investments

Tuesday October 20, 2026 3:09 pm

ECONOMYNEXT – Sri Lanka’s Cabinet of Ministers approved a decision to publish the draft Public-Private Partnership (PPP) bill in the Government Gazette before submitting it to Parliament, Cabinet Spokesman and Minister Nalinda Jayatissa said, aiming to attract private capital into public investments,

The new law is expected to provide legal provisions to establish a National Agency for PPP and to promote and facilitate PPPs in Sri Lanka.

The Legal Draftsman has already drafted the relevant bill, and the Attorney General has granted legal clearance for the proposed law.

“This Act is being introduced and formulated taking into account the opportunities and challenges we identified regarding public-private partnerships over the recent past,” Cabinet Spokesman Jayatissa told reporters at the weekly post-Cabinet media brief.

“Specifically, this includes establishing a comprehensive statutory and legal framework for identifying, formulating, evaluating, approving, procuring, implementing, monitoring, and concluding Public-Private Partnership projects.”

He also said establishing the National Agency for PPP is to facilitate, advise, coordinate, monitor, and assist in executing PPP projects across all sectors of the economy.

The objectives also include integrating PPP projects with the public investment management framework established under the Public Financial Management Act.

It also aims to ensure fiscal discipline and guarantee consistency across project approval and monitoring processes.

“This bill is being drafted to place public-private partnerships on a much more structured and formalized footing,” Jayatissa said.

“In particular, it includes establishing a transparent, competitive procurement framework to select private partners in accordance with procurement guidelines issued by the National Procurement Commission, among several other reasons for presenting this bill.”

“As you can see, although we have attempted this intermittently in our history, we were never able to carry out Public-Private Partnerships at the speed and efficiency that we and the country required. That was due to transparency issues, inter-agency friction, institutional coordination problems, and several other bottlenecks.”

“There are legal framework issues and institutional issues. In addressing these, this bill is intended to resolve the statutory and legal constraints.”

Sri Lanka’s historical struggle to successfully execute PPPs for major infrastructure and national investments stems from a combination of institutional, legal, and political bottlenecks.

Chief among these have been policy unpredictability and abrupt regime changes, which have often led to the renegotiation, suspension, or cancellation of major foreign-backed projects, severely eroding investor confidence.

Additionally, the absence of a unified, transparent legal and institutional framework has deterred reputable international developers and institutional equity.

The move is also compounded by bureaucratic red tape, protracted procurement processes, and a lack of standardized risk-sharing mechanisms.

These structural hurdles, alongside governance challenges, opaque unsolicited proposal processes, and occasional public resistance rooted in nationalist sensitivities over strategic state assets, have consistently constrained Sri Lanka’s ability to leverage private capital for transformative infrastructure development. (Colombo/October 20/2026)