Fitch publishes Lakdhanavi first time AA+ rating, Outlook Stable

Power producer Lakdhanavi’s rating reflects LTLH’s leading market position in the country’s power sector

Fitch Ratings has published Sri Lanka-based power producer Lakdhanavi Limited’s first-time National Long-Term Rating of ‘AA+(lka)’. The Outlook is Stable.Fitch rates Lakdhanavi based on the consolidated profile of the parent, LTL Holdings (Private) Limited (LTLH), due to the strong legal and operational linkages between the two entities, as defined in our Parent and Subsidiary Rating Linkage Criteria.The rating reflects LTLH’s leading market position in the country’s power sector, stable cash flow generation stemming from fixed long-term operation and maintenance (O&M) contracts and power purchase agreements (PPAs), strong EBITDA margins offset by the small operating scale of its business segments other than O&M and power generation, which are inherently more volatile.The rating also reflects Fitch’s assessment that the group will maintain an adequate financial profile with EBITDA/interest coverage (including proportionate consolidation of subsidiaries Lakdhanavi Bangla Power Limited (LBPL: 51%) and Feni Lanka Limited (Feni: 56%) above 2.5x over the rating horizon.”We view the operational and legal linkages between Lakdhanavi and its weaker parent, LTLH, to be strong under our Parent and Subsidiary Rating Linkage Criteria. The linkages include LTLH’s strong control over Lakdhanavi’s board, presence of a centralised treasury, unrestricted cash flow fungibility between the two entities and upstream guarantees provided by Lakdhanavi”.”We view LTLH’s links with its parent, Ceylon Electricity Board (CEB, AA+(lka)/Negative), to be weak and rate it on a standalone basis. Even though CEB controls LTLH’s board, the presence of minority shareholders, LTLH’s independent management team, separate financing arrangements and LTLH’s record of no cash leakages other than modest dividends after considering its investment plans supports our view of weak linkages. Fitch believes CEB has limited incentive to access LTLH’s cash beyond dividends because of the latter’s small size; any large outflows will be negative for Lakdhanavi’s rating,” Fitch said.