Energy

Sri Lanka’s Lakdhanavi downgraded to same level as CEB over fuel, forex shortages

Thursday January 27, 2022 4:49 pm

ECONOMYNEXT – Fitch Ratings has downgraded Sri Lanka’s based Lakdhanavi, which is part of an engineering group linked to state-run Ceylon Electricity Board as forex shortages have triggered fuel shortages.

Lakdhanavi is a subsidiary of LTL Holdings, which is a joint venture with state-run Ceylon Electricity Board which has a domestic rating of ‘AA-(lka)/Stable’.

Sri Lanka’s sovereign rating was recently downgraded to ‘CC’ by Fitch from ‘CCC’.

“The downgrade reflects the risk of disruptions to Lakdhanavi’s domestic operations from a potential fuel shortage and heightened counterparty risk due to its exposure to payments from the Sri Lankan government, amid the country’s falling foreign-currency reserves and weakening fiscal position,” Fitch said.

“The downgrade also takes into account the company’s increasing exposure to CEB in the next few years with the commissioning of the new liquid natural gas (LNG) power plant, Sobadhanavi.

“We believe this constrains the rating on Lakdhanavi to the same level as CEB given the high counterparty concentration.”

Lakdhanavi gets 40 percent of its gross profits from West Coat Power (Yugadanavi), which is largely driven by capacity-based tariffs, Fitch said.

However, if the plant is shut down, Lakdhanavi could lose around 25 percent of such gross profits, which is based on plant utilisation.

Yugathanavi is a plant which was set up without a guaranteed heat rate without competitive tender.
The full statement is reproduced below:

Fitch Downgrades Sri Lanka’s Lakdhanavi to ‘AA-(lka)’; Outlook Stable

Fitch Ratings – Colombo – 26 Jan 2022: Fitch Ratings has downgraded the Sri Lanka-based Lakdhanavi Limited’s National Long-Term Rating to ‘AA-(lka)’ from ‘AA+(lka)’. The Outlook is Stable.

The downgrade reflects the risk of disruptions to Lakdhanavi’s domestic operations from a potential fuel shortage and heightened counterparty risk due to its exposure to payments from the Sri Lankan government (Long-Term Foreign-Currency Issuer Default Rating: CC) through state-owned Ceylon Electricity Board (CEB: AA-(lka)/Stable), amid the country’s falling foreign-currency reserves and weakening fiscal position.

The downgrade also takes into account the company’s increasing exposure to CEB in the next few years with the commissioning of the new liquid natural gas (LNG) power plant, Sobadhanavi. We believe this constrains the rating on Lakdhanavi to the same level as CEB given the high counterparty concentration.

KEY RATING DRIVERS

Risks of Operational Disruptions: Sri Lanka’s falling foreign-currency reserves is creating challenges in importing fossil fuels, which drives around 50% of the country’s power generation. This has increased the risk that Lakdhanavi’s cash flows may be disrupted if its main customer, Yugadanavi, a large thermal power plant that provides 15% of the country’s power output to CEB, faces operating challenges.

Lakdhanavi derives around 40% of its gross profits from this plant, which is largely driven by capacity-based tariffs. However, if the plant is shut down, Lakdhanavi could lose around 25% of such gross profits, which is based on plant utilisation. In addition, the CEB may also have less incentive to make timely capacity tariff payments if the plant is not operational. Up until now, Lakdhanavi has not experienced any material payment delays from the plant.

Higher Counterparty Concentration: We expect Lakdhanavi’s EBITDA from CEB to rise to around 75% by the financial year ending 31 March 2025 (FY25) from around 50% in FY21, with the commissioning of the Sobadhanavi plant. We believe this will materially reduce Bangladesh’s contribution to Lakdhanavi’s gross profits to around 15%, diluting the geographic and counterparty diversification. At present, the company does not have any firm plans for overseas expansion. Lakdhanavi has started construction of the Sobadhanavi plant.

Challenging Macroeconomic Environment: Sri Lanka’s economic performance is likely to weaken in 2022 due to the challenging external position and pressure on its exchange rate. Foreign-currency shortages in 2021 hampered food and fuel imports, and continued external liquidity stress could worsen supply shortages, hurting economic activity. We expect GDP growth to slow to 2.0% in 2022, from an estimated 3.6% in 2021, before
recovering to 4.3% in 2023 partly due to base effects and a gradual easing of domestic pressures, but downside risks to our forecasts remain.

Large Investments: We expect Lakdhanavi’s net leverage to rise to 5.9x by FY24 from 1.1x in FY21 due to its USD190 million investment in the 350MW Sobadhanavi power plant. The plant has secured a 20-year power purchase agreement (PPA) with CEB.

Lakdhanavi will fund 30% of the cost of the plant via equity and 70% from a project loan. We believe this investment will materially reduce the group’s current cash reserves of LKR26 billion-27 billion, which would have otherwise helped to significantly strengthen the liquidity position amid operational disruptions and possible payment delays.

Rated on Parent’s Consolidated Profile: Lakdhanavi is a subsidiary of LTL Holding (LTLH), which has access to the subsidiary’s cash flows and its management team overlaps with that of the subsidiary.

Lakdhanavi also contributes the majority of LTLH’s consolidated EBITDA. We assess Lakdhanavi’s standalone credit profile and its parent LTL Holding’s (LTLH) consolidated credit profile to be similar.

LTLH is majority-owned by CEB and CEB’s credit profile is assessed at the same level as LTLH.

We consequently rate Lakdhanavi based on consolidated profile of LTLH group in line with our Parent and Subsidiary Linkage Rating Criteria.

DERIVATION SUMMARY

Lakdhanavi is rated one notch below domestic footwear and tire manufacturer DSI Samson Group (Private) Limited (DSG: AA(lka)/Stable) to reflect Lakdhanavi’s exposure to the Sri Lanka sovereign as a key counterparty. DSG has seen an improvement in its business profile as it benefits from import substitution in the country amid weak external finances. We believe DSG is less affected by import restrictions and foreign-currency shortages given its modest earnings from exports, which should help the company to maintain its net leverage below 4.0x in the next few years.

The leaders in the consumer durables retail sector in Sri Lanka, Singer (Sri Lanka) PLC (AA-(lka)/Negative) and Abans PLC (AA-(lka)/Stable), are rated at the same level as Lakdhanavi as they are also exposed to stress on the sovereign in the form of import restrictions, given they import the majority of the products they sell. Lakdhanavi’s high counterparty risk is balanced by the consumer durable retailers’ more discretionary demand and weaker financial profiles.

Lakdhanavi is rated one notch above domestic power producer Resus Energy PLC (A+(lka)/Negative), on account of Lakdhanavi’s large operating scale and geographic and business diversification. We believe CEB may prioritise payments to Lakdhanavi, which is the operation and maintenance (O&M) provider for one of the largest power plants in the country, and because of its investments in LNG power plants, which are critical for CEB’s future strategy.

In contrast, Resus’ contribution to the country’s power sector is less than 1%. The Negative Outlook on Resus’ rating reflects the impact on liquidity and leverage from extended payment delays from CEB, from which it derives 100% of its cashflows, amid disruptions to the power sector.

KEY ASSUMPTIONS

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

– Revenue to decline around 5% in FY23 due to lower utilisation of the WCPL plant. Revenue to increase by 65% in FY24 and 42% in FY25 with the start of operations at the Sobadhanavi power plant.

– EBITDA margin to average 20%-25% over FY23-FY25.

– Capex of LKR5 billion in FY22 and LKR23 billion in FY23, mainly for the Sobadhanavi plant

– Dividend pay-out of LKR3.0 billion-4.0 billion per year over FY22-FY25.

RATING SENSITIVITIES

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

– LTLH’s consolidated net debt/EBITDA (with proportionate consolidation of LBPL and Feni) rising above 6.5x for a sustained period

– LTLH’s consolidated operating EBITDA/interest paid (with proportionate consolidation of LBPL and Feni) falling below 1.5x for a sustained period

– Material increase in the counterparty risk
Factors that could, individually or collectively, lead to positive rating action/upgrade:

– A sustained and substantial reduction in counterparty risk, as reflected in an improvement in the Sri Lanka sovereign’s credit profile and external financing position, that would lead to diminishing risks of disruption to Sri Lanka’s power sector

– LTLH’s consolidated net debt/EBITDA (with proportionate consolidation of LBPL and Feni) falling below 5.5x for a sustained period.

LIQUIDITY AND DEBT STRUCTURE

Liquidity Hinges on Uninterrupted Operations: The group had around LKR17.0 billion of unrestricted cash available at end-September 2021 to meet LKR16.0 billion of debt maturing in the next 12 months.

Around LKR5.5 billion of LTLH’s debt maturities in the next 12 months are short-term working-capital lines, which we expect banks to roll over as they fall due in the normal course of business. We expect the remaining contractual maturities to be met through cash at hand and the group’s access to over LKR3.0 billion of unused uncommitted credit lines.

Even though Lakdhanavi derives 35%-40% of cashflows from its Bangladesh operations, the majority of the cash is used to pay outstanding project debt with very little up-streamed to the Sri Lankan operations as dividends.

Lakdhanavi’s domestic liquidity position largely depends on the cash flows from its O&M operations and any disruption to such cashflows could put pressure on liquidity and refinancing options.

ISSUER PROFILE

Lakdhanavi is a leading Sri Lanka-based engineering, procurement and construction company. It is involved in the power sectors in Sri Lanka, Bangladesh and Nepal with operations in power generation, O&M services, power plant construction and other ancillary services.

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)