ECONOMYNEXT – Sri Lanka’s Aitken Spence Hotel Holdings has been assigned a National Long-Term Rating of ‘AA+(lka)’ by Fitch Ratings, with a stable outlook.
The rating reflects support from its stronger parent, Aitken Spence PLC, the rating agency said.
Fitch has also assigned a ‘AA(lka)’ National Long-Term Rating to ASHH’s proposed senior unsecured debentures of up to LKR5 billion.
The full statement is reproduce below:
Fitch Assigns Aitken Spence Hotel Holdings First-Time ‘AA+(lka)’/Stable; Rates Proposed Debentures
Fitch Ratings – Colombo: Fitch Ratings has assigned Aitken Spence Hotel Holdings PLC (ASHH) a National Long-Term Rating of ‘AA+(lka)’. The Outlook is Stable.
ASHH’s rating reflects support from its stronger parent, Aitken Spence PLC (ASP), due to ‘High’ operational and strategic incentives, but ‘Low’ legal incentives, under Fitch’s Parent and Subsidiary Linkage (PSL) Rating Criteria. We assess ASHH’s Standalone Credit Profile (SCP) at ‘aa-(lka)’, supported by cash flow from its hotel portfolio (15 owned, four managed) – mainly in the Maldives and Sri Lanka – alongside low leverage and sufficient access to funding. These strengths are balanced against ASHH’s high exposure to the weakening Maldivian economic environment.
Fitch has assigned a ‘AA(lka)’ National Long-Term Rating to ASHH’s proposed senior unsecured debentures of up to LKR5 billion. The proposed debentures are rated one notch below the issuer rating, due to material subordination to secured bank debt, which accounts for the large majority of ASHH’s debt structure. Debenture proceeds will be used to settle existing bank debt and payables to ASP, and for capex.
Key Rating Drivers
Parent’s High Strategic Incentives: Fitch assesses ASP’s strategic incentives to support ASHH as ‘High’, with ASHH contributing around 65% of ASP’s EBITDA and over 50% of the group’s assets over the medium term. We forecast ASHH’s EBITDA to increase at a CAGR of about 10% over the financial years ending March 2026 to March 2029 (FY26-FY29), outpacing most of ASP’s other businesses. Growth is supported by rising capex for hotel refurbishments and product repositioning, which we expect will increase room rates and profit margins.
ASHH’s US dollar-pegged cash flow provides a ‘Medium’ competitive advantage to ASP and has supported the group’s operational and financing flexibility during Sri Lanka’s economic crisis.
High Operational, Low Legal Incentives: We assess ASP’s operational incentives to support ASHH as ‘High’, reflecting significant board and management overlap and a shared brand. ASHH’s services are bundled with ASP’s destination management business, although ASP also has external suppliers. ‘Low’ legal incentives reflect our expectation that debt guaranteed by ASP will decline over time, from around 35% of ASHH’s total debt at FYE25. ASP also provides intragroup liquidity support, including advances of LKR2.7 billion to ASHH at FYE25.
Ultimate Parent Support: ASP’s credit profile incorporates support from its 51% parent, Melstacorp PLC (AAA(lka)/Stable). Melstacorp has ‘Medium’ strategic incentives to support ASP, while operational and legal incentives are ‘Low’. We expect ASP’s EBITDA to contribute about 25%-30% of Melstacorp’s EBITDA over the medium term, offering higher growth than its parent’s core beverage business. We expect support to flow to ASHH from its ultimate parent, Melstacorp, via ASP, if required, given ASHH’s large contribution to ASP’s credit profile.
Hotel Operations Drive Cash Flow: ASHH’s hotel business drives the credit profiles of ASHH and ASP, generating about 65% of ASP’s EBITDA. ASHH owns, operates and manages properties with over 2,600 rooms, mainly in the Maldives (70% of ASHH’s EBITDA) and Sri Lanka. We expect tourist arrivals to Maldives to rise by mid-single digits in 2025, following 9% growth in 2024 as demand from China and Russia recovered. We forecast ASHH’s EBITDA margins to remain steady, averaging 25% over FY26-FY29, supported by increased investments in its portfolio.
Cash Flow-Debt Mismatch: ASHH’ credit profile is weighed down by its exposure to the weak Maldivian economic environment, where Fitch believes that a default event of some sort remains probable within the rating horizon. The majority of ASHH’s EBITDA stems from its Maldivian hotels, while most of the company’s borrowings are with Sri Lankan banks. This exposes ASHH’s liquidity to the risk of tightening currency regulations in the Maldives should sovereign distress escalate.
Maldivian Currency Regulations: The Maldives Monetary Authority in 2024 implemented mandatory conversion of 20% of gross sales received in foreign currency to local currency, but exempted businesses with offshore debt servicing requirements. ASHH, supported by ASP, has strong access to Sri Lankan banks that has allowed it to term-out its annual term loan repayments which, together with sustained high cash balances, mitigates liquidity risk.
Modest Leverage Despite High Capex: Fitch expects ASHH’s financial profile to remain healthy despite higher capex, forecasting EBITDAR net leverage – including lease liabilities – at 2.5x by FYE26 and 2.9x by FYE27. We expect capex to rise to 11% of revenue in FY26 and 13% in FY27, reflecting refurbishment spending deferred in recent years amid economic challenges. Funding is likely to be a mix of new debt, operating cash flow, and accumulated cash and cash equivalents. We forecast EBITDAR fixed-charge cover (including lease rent) to remain around 3.0x.
Peer Analysis
ASHH’s SCP of ‘aa-(lka)’ benefits from support from its immediate parent, ASP, which in turn benefits from support of its parent, Melstacorp – ASHH’s ultimate parent.
ASHH’s SCP is one-notch lower than footwear and tyre manufacturer and retailer DSI Samson Group (Private) Limited (AA(lka)/Stable). DSI benefits from more defensive demand than ASHH. DSI operates an integrated supply chain, with all-round operations ranging from manufacturing to distribution. Its footwear and tyre segments account for significant domestic market share in their respective categories. DSI’s rating is constrained by cyclical demand for its largely homogenous products in a competitive market. DSI’s leverage is smaller than that of ASHH.
Singer (Sri Lanka) PLC (AA-(lka)/Stable) is rated at the same level as ASHH’s ‘aa-(lka)’ SCP. The credit profile of Sri Lanka’s largest consumer‑durable retailer by revenue is weighed down by its regulated finance company subsidiary, Singer Finance (Lanka) PLC (BBB+(lka)/Stable). Singer’s core consumer electronics business is considered stronger, benefiting from well-entrenched brands and an island-wide distribution and retail network. The company has strong financing access in a local context, with low leverage of around 3.0x when finance company debt is excluded.
Steel cable manufacturer Sierra Cables PLC (A+(lka)/Stable) is rated one notch below ASHH’s ‘aa-(lka)’ SCP. Sierra is a prominent player in a fragmented industry, catering to construction projects while market leaders dominate retail sales. Demand for Sierra’s products is cyclical, although import restrictions during the Covid-19 pandemic and Sri Lanka’s economic crisis boosted demand for locally manufactured cables. This helped mitigate the impact of otherwise weak demand on cash flow. Sierra is smaller in scale compared to ASHH, as measured by EBITDA, while ASHH also benefits from stronger access to domestic banks.
Fitch’s Key Rating-Case Assumptions
– Revenue growth of 6% in FY26 and 4% in FY27, supported by stable demand from source markets and increasing room rates following refurbishments.
– The EBITDA margin to remain stable around 25% in FY26, before declining modestly to 23% in FY27 amid temporary hotel closures for refurbishments.
– Capex to rise to around 12% of annual revenue in FY26-FY27 on refurbishments, with no ordinary dividends in line with ASHH’s recent record.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
– Weakening of ASP’s incentives to support ASHH;
– Weakening of Melstacorp’s incentives to support ASP;
– Sustained increase in ASHH’s EBITDAR net leverage to above 3.5x;
– Sustained weakening in ASHH’s EBITDAR fixed charge cover to below 2.5x;
– Weakening of ASHH’s liquidity, including due to a material increase in the risk of repatriating cash flow out of the Maldives.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
– An upgrade is not envisaged in the medium term, due to ASHH’s exposure to the Maldivian currency regulations and sovereign risk, amid its cash flow-debt mismatch.
Liquidity and Debt Structure
ASP’s cash balance was around LKR43 billion as of FYE25, with LKR10 billion held at ASHH and a further LKR10 billion held at the holding company level. This cash balance and Fitch-forecast free cash flow (after capex) for the group support liquidity. These sources along with ASP’s strong access to Sri Lankan banks as a local blue-chip corporate support the group’s term-loan repayments of around LKR9 billion and the rollover of LKR20 billion of short-term working capital debt and overdrafts in FY26. ASHH accounted for LKR7 billion of the term-loan repayments and LKR6 billion of the short-term facilities.
Issuer Profile
ASHH owns and manages hotel properties in Sri Lanka, the Maldives, India and Oman. The group had an inventory of over 2,600 rooms in FY25 across its 15 owned properties and four managed properties.