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.

Bonds & Forex

Sri Lanka rupee closes at 332.53/59 to US dollar spot, bond yields edge up

Monday November 9, 2026 5:05 pm

ECONOMYNEXT – Sri Lanka’s rupee closed at 332.53/59 to the US dollar spot on Monday, from 332.55/60 the previous day, while bond yields closed higher, dealers said.

A bond maturing on 15.09.2029 closed at 190/98 percent, up from 10.85/95 percent.

A bond maturing on 01.08.2030 closed at 11.07/12 percent, up from 11.05/10 percent.

A bond maturing on 01.02.2031 closed at 11.30/40 percent, up from 11.10/15 percent.

A bond maturing on 15.12.2032 closed at 11.65/70 percent, up from 11.55/65 percent.

A bond maturing on 01.11.2033 closed at 11.95/12.00 percent, up from 11.90/95 percent.

A bond maturing on 15.10.2034 closed at 12.10/15 percent, up from 12.05/12 percent.

A bond maturing on 15.08.2036 closed at 12.40/50 percent, up from 12.30/40 percent. (Colombo/Nov9/2026)

Markets

Sri Lanka stocks close up 1.37-pct, banks lead turnover

Monday November 9, 2026 3:29 pm

ECONOMYNEXT – Sri Lanka’s Colombo Stock Exchange closed up on Monday, CSE data showed, with the benchmark All Share Price Index moving up 1.37 percent.

The ASPI was up 291.72 points at 21,531.37, while the more liquid S&P SL20 was up 1.67 percent, or 100.96 points, at 6,146.34.

Positive contributors to the ASPI were Commercial Bank of Ceylon (up 2.86 percent at 216.00 rupees), Hatton National Bank (up 1.52 percent at 399.75 rupees), Asiri Hospital Holdings (up 12.86 percent at 31.60 rupees), Tokyo Cement Company (up 5.22 percent at 84.70 rupees), and Access Engineering (up 3.93 percent at 81.90 rupees).

Carson Cumberbatch (down 4.24 percent at 712.00 rupees), Richard Pieris and Company (down 2.43 percent at 28.10 rupees), LOLC Holdings (down 0.62 percent at 400.00 rupees), Renuka Holdings (down 2.63 percent at 37.00 rupees), and Chevron Lubricants Lanka (down 0.61 percent at 204.25 rupees) were top negative contributors.

Market turnover was 3.33 billion rupees. The S&P/CSE Banks Industry Group led turnover with 667.76 million rupees.

The session saw heavy crossings, according to Raynal Wickremeratne, Head of Research and Strategy at NDB Securities. Significant crossings included Keells (23 million rupees), Distilleries Company (27.7 million rupees), Sunshine Holdings (30.6 million rupees), Commercial Bank (32.4 million rupees), Ceylon Tobacco Company (35.6 million rupees), Hatton National Bank (39.5 million rupees), Prime Lands (40.5 million rupees), and HAS Holdings (41.5 million rupees).

In corporate news, Hayleys Retail Holdings Ltd announced it has partnered with supply chain software provider Blue Yonder to build and scale an AI-native grocery supermarket chain across Sri Lanka. (Colombo/Nov09/2026)

Information Technology

Sri Lanka’s Hayleys Retail to launch supermarket chain with Blue Yonder

Monday November 9, 2026 3:12 pm

ECONOMYNEXT — Hayleys Retail Holdings Ltd has selected supply chain software provider Blue Yonder to build its grocery retail operations from the ground up, the two companies said in a joint statement.

Hayleys Retail, a member of Sri Lanka’s diversified conglomerate Hayleys Group, plans to open several stores in the near future to serve consumers across the country. The agreement marks Blue Yonder’s first retail customer in Sri Lanka.

“Our entry into supermarket retail is about bringing that same commitment to quality and reliability closer to everyday Sri Lankan consumers,” Mohan Pandithage, Chairman and Chief Executive of Hayleys PLC said.

“With Blue Yonder, our teams will have AI-driven insight to deliver a seamless, consistent shopping experience across every store,” he said.

Hayleys, which accounts for approximately 5 percent of Sri Lanka’s export income and operates across 17 business sectors, is entering the large-scale supermarket space by drawing on its group strengths in manufacturing, logistics, and services.

The company selected Blue Yonder to connect its data across merchandising and shelf space, deploy artificial intelligence agents to catch operational issues early, and scale its business into a national network without changing platforms.

The rollout will begin with merchandise operations to manage suppliers, items, costs, and pricing, followed by machine learning capabilities to forecast demand and balance store inventory during seasonal peaks.

“Hayleys Retail is choosing one where AI is the foundation rather than an add-on—connected data and agentic AI built into core merchandising operations, and planning that learns as the business grows,” Antonio Boccalandro, President, APAC at Blue Yonder said.

The retailer plans to use the platform to automate routine store tasks and adjust inventory according to real-time sales and local market trends as its store footprint grows. (Colombo/Nov09/2026)

Stocks & Companies

Sri Lanka’s Citrus Leisure extends Lotus Tower management pact

Monday November 9, 2026 1:16 pm

ECONOMYNEXT – Sri Lanka listed hospitality firm Citrus Leisure said it has extended an agreement to manage consumer-facing and entertainment spaces at the Colombo Lotus Tower, which includes revolving restaurant Blue Orbit, until June next year.

The initial agreement signed between Citrus Leisure and Colombo Lotus Tower Management Company (Private) Limited (CLTMC) is due to expire on December 11.

“The Board of Directors of CLTMC at meeting held on 2nd November 2026 has resolved to extend the term of the Management Agreement and continue the existing Management Agreement until 30th June 2027, to which the company has given its concurrence,” the company said in a market filing.

Citrus Leisure Plc opened its revolving restaurant at the Lotus Tower in December 2023.

The company signed a 3-year agreement with CLTMC in May 2023 to provide services in the management of (l) the banquet hall 1 on the 25th floor, (2) the banquet hall 2 on the 26th floor, (3) the revolving restaurant on the 27th floor, (4) the 6 suites situated on the 28th floor and the kitchen in the basement floor of the Colombo Lotus Tower.

The 350-meter or 1,150-feet tower, the tallest in South Asia, was built at a cost 104.3 million US dollars with 80 percent of the money borrowed from Exim Bank of China.

Located in the commercial heart of Colombo, the tower has been called a symbolic landmark of Sri Lanka as well as a colossal white elephant and has been mired in controversy for years. (Colombo/Nov9/2026)

Markets

CIC Holdings Sept quarter net profit rises 20-pct to Rs1.7bn

Monday November 9, 2026 11:50 am

ECONOMYNEXT — Sri Lanka conglomerate CIC Holdings recorded a net profit of 1.66 billion rupees for the quarter ended September 30, rising 20.3 percent from 1.38 billion rupees in the same quarter last year, interim accounts showed.

The group posted basic earnings per share of 0.87 rupees for the September quarter, up from 0.73 rupees a year earlier.

Quarterly revenue grew 3.4 percent to 20.89 billion rupees from 20.20 billion rupees, supported by broad-based growth across industrial solutions, livestock, and healthcare segments, which counterbalanced relative demand moderation in agricultural inputs.

Cost of sales rose 5.3 percent to 15.20 billion rupees, outpacing revenue growth and causing gross profit to contract marginally by 1.2 percent to 5.68 billion rupees.

Results from operating activities dropped 7.3 percent to 2.66 billion rupees from 2.87 billion rupees, impacted by higher operating overheads.

Selling expenses expanded 6.8 percent to 2.15 billion rupees, and general and administrative expenses climbed 5.8 percent to 1.07 billion rupees, while other operating income dropped 29.6 percent to 117.40 million rupees.

However, operating profits were cushioned by an impairment reversal on trade receivables of 85.83 million rupees, turning around from an impairment provision of 23.38 million rupees in the corresponding quarter last year.

Net finance costs climbed 35.4 percent to 712.25 million rupees from 526.01 million rupees.

The increase was driven by a 30.8 percent rise in finance expenses to 771.46 million rupees, primarily reflecting higher interest expenses on loans to finance elevated working capital and inventory requirements.

The quarter’s bottom line was strongly bolstered by CIC’s equity-accounted investment in John Keells Holdings PLC (JKH).

Share of profit from equity-accounted investees surged more than fourfold to 590.50 million rupees from 257.87 million rupees, driven by JKH’s strong profit expansion during the period.

The group also recognized a gain on bargain purchase of 55.59 million rupees during the quarter resulting from additional share purchases in JKH where the proportionate net asset value exceeded acquisition cost, compared to no such gain a year earlier.

With associate income gains offsetting operating margin contraction and higher borrowing costs, group pre-tax profit held virtually flat at 2.59 billion rupees, down 0.11 percent.

Income tax expense fell 29.4 percent to 606.24 million rupees from 858.71 million rupees, driving total group profit for the period up 14.1 percent to 1.98 billion rupees.

Total group assets stood at 108.58 billion rupees as of September 30, up from 99.75 billion rupees at the end of March 2026.

Group net asset value per share increased to 25.52 rupees from 22.10 rupees a year earlier.

CIC Holdings’ ordinary voting shares closed at 27.80 rupees at the end of September.(Colombo/Nov09/2026)