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Fitch downgrades SL’s Long-Term Local-Currency IDR to ‘RD’

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Global rating agency, Fitch, in its latest report downgraded Sri Lanka’s Long-Term Local-Currency (LTLFC) Issuer Default Rating (IDR) to ‘RD’ (Restricted Default) from ‘C’.

In a press release Fitch said the ratings on its local-currency bonds tendered in the domestic debt exchange have been downgraded to ‘D’ from ‘C’ while its other four local-currency bonds not tendered in the domestic debt exchange have been affirmed at ‘C’.

The Long-Term Foreign-Currency (LTFC) IDR has been affirmed at ‘RD’, and the ratings on Sri Lanka’s foreign-currency bonds have been affirmed at ‘D,’ Fitch said.

Given that Fitch typically does not assign outlooks to sovereigns with a rating of ‘CCC+’ or below, all issue ratings have subsequently been withdrawn, the press release said.

“Fitch has withdrawn the issue ratings of Sri Lanka’s foreign and local-currency bonds as these are no longer considered to be relevant to the agency’s coverage,” Fitch said.

Given below is the press release in full: “Distressed Debt Exchange: The downgrade of Sri Lanka’s LTLC IDR reflects the partial completion of an exchange of Sri Lanka’s T-bonds on 14 September as part of a broader domestic debt optimisation (DDO) launched in July 2023. The DDO also includes conversion of T-bills held by the Central Bank of Sri Lanka (CBSL) into treasury bonds (T-bonds), which has not yet been completed.

“In Fitch’s view, the exchange of T-bonds constitutes a distressed debt exchange (DDE) under the agency’s criteria, given that the maturity extension of the tendered bonds represents a material reduction in terms versus the original contractual terms, and given that the exchange is needed to avoid a traditional payment default.

“Reduction in Terms: Eligible bonds for which tenders were received and accepted have been exchanged into 12 new instruments of equal size and the same aggregate principal amount, maturing between 2027 and 2038. Accepted tenders reached about 37% of the outstanding principal amount of eligible bonds outstanding as of 28 June 2023. Accepted tenders were predominantly by superannuation funds, which will face higher tax rates on income from T-bonds if they did not meet a participation threshold.

“Local-Currency Debt Service Continuing: Fitch believes that Sri Lanka has continued to service the T-bonds throughout the DDO process, and that T-bonds not tendered in the exchange will continue to be serviced as per their original terms, including but not limited to the entirety of the 12 series of T-bonds (out of 61 eligible series) for which no valid tenders were received. Four of these 12 series were rated by Fitch and were affirmed at ‘C’ prior to withdrawal.

“Local-Currency Restructuring Incomplete: Under Fitch’s rating criteria, the LTLC IDR will remain in ‘RD’ until the debt exchange is completed in its entirety. Fitch deems the process incomplete, as the exchange of T-bills held by CBSL is still pending. Fitch regards the T-bills as public debt securities, and they are also held by private investors.

“Foreign-Currency IDR in Default: The sovereign remains in default on foreign-currency obligations and has initiated a debt restructuring with official and private external creditors. The Ministry of Finance had issued a statement on 12 April 2022 that it had suspended normal debt servicing of several categories of external debt, including bonds issued in international capital markets, foreign currency-denominated loans and credit facilities with commercial banks and institutional lenders.

“ESG – Governance: Sri Lanka has an ESG Relevance Score of ‘5’ for Political Stability and Rights as well as for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in our proprietary Sovereign Rating Model (SRM). Sri Lanka has a medium WBGI ranking in the 45th percentile, reflecting a recent record of peaceful political transitions, a moderate level of rights for participation in the political process, moderate institutional capacity, established rule of law and a moderate level of corruption.

“ESG – Creditor Rights: Sri Lanka has an ESG Relevance Score of ‘5’ for Creditor Rights, as willingness to service and repay debt is highly relevant to the rating and is a key rating driver with a high weight. The affirmation of Sri Lanka’s LTFC IDR at ‘RD’ and downgrade of LTLC IDR to ‘RD’ reflect a default event.

“The Country Ceiling for Sri Lanka is ‘B-‘. For sovereigns rated ‘CCC+’ or below, Fitch assumes a starting point of ‘CCC+’ for determining the Country Ceiling. Fitch’s Country Ceiling Model produced a starting point uplift of zero notches. Fitch’s rating committee applied a +1 notch qualitative adjustment to this, under the balance of payments restrictions pillar, reflecting that the private sector has not been prevented or significantly impeded from converting local currency into foreign currency and transferring the proceeds to non-resident creditors to service debt payments.

Fitch does not assign Country Ceilings below ‘CCC+’, and only assigns a Country Ceiling of ‘CCC+’ in the event that transfer and convertibility risk has materialised and is affecting the vast majority of economic sectors and asset classes.”



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‘Investigations won’t be stopped due to protests’

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Easter Sunday carnage:

Investigations into the 2019 Easter Sunday terror attacks will not be halted due to protests, demonstrations or Satyagraha campaigns, Minister of Public Security Ananda Wijepala told Parliament yesterday (10), while alleging that investigators had gathered sufficient evidence to establish the involvement of former State Intelligence Service (SIS) Director, retired Major General Suresh Sallay, in a conspiracy linked to the attacks.

Making a special ministerial statement in the House, the Minister said that evidence uncovered during ongoing investigations indicated that Sallay had prior knowledge of the planned attacks and related extremist activities before the coordinated bombings that claimed more than 270 lives and injured hundreds of others, on April 21, 2019.

Wijepala claimed that three weeks before the attacks, Sallay had deployed four Muslim individuals to gather intelligence, including information on the number of worshippers attending mass at a church in Negombo.

According to the Minister, the principal individual among the four had been identified by witnesses to the CID as an ISIS extremist and had subsequently gone missing following the Easter Sunday attacks.

“There is evidence suggesting that Major General Sallay met the informant who had tipped off Army Intelligence regarding the attacks at a hotel in Colombo,” Wijepala said.

The Minister maintained that investigators had uncovered evidence indicating that Sallay had taken steps to prevent the disclosure of information that could have revealed crucial details relating to the attacks and the events leading up to them.

Referring to allegations that Sallay had been subjected to inhumane treatment while in custody, Wijepala rejected such claims, describing them as false and misleading.

He told Parliament that the former intelligence chief had been afforded all facilities and privileges due to a primary suspect under the law, including unrestricted access to legal counsel.

“The Magistrate personally visited Sallay to ascertain his health and wellbeing. At no stage did he complained of any inhumane treatment. Neither has he lodged complaints with any other relevant authority in that regard,” the Minister said.

Wijepala also disclosed that Sallay had thus far declined to provide investigators with the passwords to his laptop computer and mobile phone, a move he described as an attempt to obstruct the investigative process.

“He is acting in a manner that hinders the progress of investigations,” the Minister alleged.

The Public Security Minister maintained that the government remained committed to uncovering the full truth behind the Easter Sunday attacks and bringing all those responsible before the law, irrespective of their status or position.

Emphasising that the investigation would continue without interference, Wijepala said attempts to exert pressure through public protests or Satyagraha campaigns would not influence the course of the inquiry.

“The investigations into the Easter Sunday attacks will not be halted by any protests or Satyagraha,” he said.

By Saman Indrajith

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267,138 Lankan children dropped out of school system between 2018 and 2024

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A total of 267,138 children dropped out of the school system between 2018 and 2024, Prime Minister and Minister of Education Dr. Harini Amarasuriya informed Parliament yesterday (10).

Responding to a question raised by SJB Ratnapura District SJB MP Hesha Withanage, the Prime Minister said that the government did not possess definitive data on school dropouts from 2010 to the early part of 2017.

She explained that the figures for the period from 2018 to 2024 had been derived from annual school census reports using an internationally recognised methodology that takes into account student enrolment figures and dropout rates from Grade One to Grade Ten.

According to the statistics presented to Parliament, 38,839 students dropped out of school in 2018,

while the figure increased to 41,503 in 2019. In 2020, the number stood at 32,540 before declining further to 25,492 in 2021.

However, a sharp increase was recorded in 2022, when 52,596 students were identified as having left the school system. The figure remained high in 2023 at 50,345 before declining to 25,823 in 2024.

The Prime Minister cautioned that the figures did not necessarily indicate that all students classified as dropouts had completely discontinued their education.

She noted that some students may have transferred to schools in other provinces, enrolled in international schools, or migrated overseas with their families while continuing their studies.

Dr. Amarasuriya said that such cases could not be separately identified under the methodology used to compile the statistics and were, therefore, included in the overall dropout figures.

Addressing the causes of school dropouts, the Prime Minister said a range of factors contributed to students leaving the formal education system.

These included personal circumstances, school-related issues, family and economic difficulties, social influences, as well as students opting for alternative educational pathways and training opportunities, she said.

By Saman Indrajith

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PM declares PC polls only under new electoral system

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Prime Minister Harini Amarasuriya told Parliament yesterday that Provincial Council elections would not be conducted under the existing proportional representation system and would instead be held under a new electoral system.

Responding to a question raised by MP Ravi Karunanayake, the Prime Minister said there was no justification for holding elections without ensuring adequate representation for women and youth in Provincial Councils.

She said that the government’s position was to first finalise reforms to the electoral system before proceeding with polls.

The Prime Minister also provided a detailed breakdown of when the terms of Provincial Councils expired, noting that all nine councils had been without elected administrations for several years. According to her, the Sabaragamuwa Provincial Council term ended on September 29, 2017, followed by the Eastern and North Central Councils on September 30 and October 1, 2017 respectively.

The Central and North Western Provincial Councils ended their terms on October 08 and 10, 2018, while the Northern Provincial Council term ended on October 24, 2018. The Southern Provincial Council term expired on April 10, 2019, followed by the Western Provincial Council on April 21, 2019, and the Uva Provincial Council on October 8, 2019.

Amarasuriya said that under Section 10(a) of the Provincial Councils Elections Act No. 2 of 1988, the Election Commission was required to publish a notice of intention to hold an election within one week after the dissolution or expiry of a council, following a direction from the President.

However, she noted that the Election Commission had not issued such notices due to the absence of enabling legal provisions following subsequent amendments.

She further explained that under Section 3A of the Provincial Councils Elections (Amendment) Act No. 17 of 2017, the holding of elections is linked to the completion of a delimitation process. This requires the appointment of a Delimitation Committee by the President to define electorates within administrative districts and submit its report to Parliament, with elections to be held only after parliamentary approval.

The Prime Minister said the delimitation process has not yet been completed, which has prevented the conduct of Provincial Council elections under the revised framework.

Amarasuriya also informed Parliament that a parliamentary select committee had been appointed to examine and make recommendations on whether Provincial Council elections could be conducted under the previous electoral system through further amendments to existing legislation.

The committee, titled the “Select Committee of Parliament to look into and report to Parliament on the matter of selecting the Electoral System under which the Provincial Council Elections should be held and submit its proposals and recommendations in that regard,” comprises MPs Vijitha Herath (Chairman), Nizam Kariapper, Chandana Sooriyarachchi, Darmapriya Wijesinghe, Samanmali Gunasingha, Shanakiyan Rasamanickam, Lakshman Nipuna Arachchi, Mano Ganesan, Ranjith Madduma Bandara, Arun Hemachandra, Sunil Watagala and Muneer Mulaffer.

She said further decisions regarding the holding of Provincial Council elections will be taken based on the recommendations of the parliamentary select committee.

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