Fitch Ratings has downgraded Kotagala Plantations PLC's National Long-Term Rating to 'CCC(lka)', from 'B+(lka)', and its listed unsecured debentures of LKR251 million due between the financial years ending March 2025 (FY25) and FY27 to 'CCC-(lka)', from 'B+(lka)'.
The downgrade follows a major weakening in liquidity. We expect the statutory increase in labour costs effective September 2024 to dampen free cash flow (FCF), leading to a high likelihood that Kotagala will amend or extend the terms of its debt facilities as they fall due over the next two years. We are likely to consider such transactions to be distressed debt-exchanges under our rating criteria, as they would significantly reduce the contract terms and allow the issuer to avoid a probable default. This would lead to a downgrade of the National Long-Term Rating to 'C(lka)' or 'RD(lka)' (restricted default).
Kotagala's senior unsecured notes are rated one-notch below the issuer's rating to reflect the subordination to Kotagala's secured bank debt, which comprises the large majority of its capital structure.
Fitch-Downgrades-Kotagala-Plantations-to-CCClka