"¦there is a relatively material probability that the issuer would still be able to service its foreign currency obligations, even if the sovereign does not do so on its own foreign currency obligations," Standard & Poor's credit analyst Yasmin Wirjawan said in a statement.
"This action also reflects the improved country risk factors and business environment in which the company operates. SLT continues to benefit from modest debt and positive free cash flow generation from its core businesses."
S&P also upgraded the rating on a 100 million dollar unsecured note of SLT maturing in 2009, one notch to 'B+' but left the local currency rating unchanged at 'BB-'. The outlook on the ratings was stable.
The rating agency said despite state-ownership it did not expect the government to take any action that would be adverse to the interests of Sri Lanka Telecom because of the "competitive nature of the telecommunication industry and the active participation of domestic and foreign investors in