SriLankan Airlines 2024 bonds downgraded to ‘CCC’, trades at steep discount
ECONOMYNEXT – State-run SriLankan Airlines Plc, dollar bonds due in 2024 have been downgraded to ‘CCC’ by Fitch after a sovereign rating cut.
“The national carrier’s bonds are rated at the same level as its parent, the state of Sri Lanka, due to the unconditional and irrevocable guarantee provided by the state,” Fitch Ratings said.
“The Sri Lankan government held 99.5% of SLA at end-2019 through direct and indirect holdings.”
“The rating is not derived from the issuer’s Standalone Credit Profile and thus is not comparable with that of industry peers.
Many airlines around the world are badly hit from the Coronavirus pandemic, but SriLankan had been making losses since 2008, when the then managing shareholders Emirates, was dropped.
The 7.0 percent bonds, due to mature on June 25, 2024 were quoted at 55 cents to the dollar or a yield of around 28.1 percent according to Bloomberg Newswires data.
A 6.85 percent Sri Lanka government sovereign bond due to mature on March 14, 2024 were quoted at 61 cents to the dollar or a yield of 32 percent.
Fitch said better government finances, policy coherence and credibility could lead to an upgrade of the sovereign rating and that of SriLankan Airlines.
Falling forex reserves and increased sign of a probable default event could lead to a downgrade.
External Finances: Improvement in external finances, supported by higher non-debt inflows or a reduction in external sovereign refinancing risks from an improved liability profile.
Public Finances: Stronger public finances, accompanied by a sustained decline in the general government debt to GDP ratio, closer to the ‘B’ median, underpinned by a credible medium-term fiscal consolidation strategy
Structural: Improved policy coherence and credibility, leading to more sustainable public and external finances and a reduction in the risk of debt distress
The main factors that could, individually or collectively, lead to negative rating action/downgrade:
Increased signs of a probable default event, for instance from severe external liquidity stress, potentially reflected in an ongoing erosion of foreign exchange reserves and reduced capacity of the government to access external financing. (Colombo/Dec27/2020)