Fitch affirms SriLankan Airlines govt guaranteed bonds at B+

Fitch Ratings has affirmed SriLankan Airlines Limited's (SLA) US dollar-denominated government guaranteed bonds at 'B+'. KEY RATING DRIVERS The airline's bonds are rated at the same level as SLA's parent, the government of Sri Lanka (GoSL; B+/Negative) due to the unconditional and irrevocable guarantee provided by the government. GoSL held 99.5% of SLA as at end-2016 through direct and indirect holdings. DERIVATION SUMMARY Fitch has rated SLA's US dollar-denominated bonds at the same level as the sovereign due to the unconditional and irrevocable guarantee provided by the government. The rating is not derived from its issuer's standalone credit profile and thus is not comparable to its industry peers. RATING SENSITIVITIES Negative: Developments that may, individually or collectively, lead to negative rating action include: - A downgrade of the sovereign rating Positive: Developments that may, individually or collectively, lead to positive rating action include: - An upgrade of the sovereign rating For the sovereign rating of Sri Lanka, the following sensitivities were outlined by Fitch in its Rating Action Commentary of 29 February 2016. The Negative Outlook reflects the following risk factors that could, individually or collectively, result in a downgrade of the ratings: - A further increase in external vulnerability driven by a sustained decline in FX reserves reflecting, for instance, reduced international market access and/or a sudden reversal in portfolio inflows. - A further deterioration in policy coherence and credibility that widens macroeconomic imbalances and/or heightens external vulnerabilities. - Continued fiscal slippage resulting in a failure to stabilise the general government debt ratio. The main factors that could, individually or collectively, lead to a revision of the Outlook to Stable are: - Implementation of a predictable and robust policy framework leading to a reduction in risks to basic economic and financial stability. - Improvement in Sri Lanka's public finances underpinned by a credible medium-term fiscal consolidation strategy, including a broadening of the general government revenue base. - Sustained smaller current-account deficits with higher levels of non-debt capital inflows (FDI) and an increase in foreign exchange reserves.