Fitch Ratings has assigned Sri Lanka-based conglomerate Melstacorp PLC a National Long-Term Rating of ‘AAA(lka)’. The outlook is stable.
Melstacorp’s rating reflects the group’s strong credit profile, underpinned by its entrenched market position in Sri Lanka’s alcoholic-beverage sector and the high entry barriers, which drive its strong operating cash flows and low leverage, and offset the weaknesses in its other, less operationally significant, investments. Melstacorp’s rating also factors in its controlling stake in Sri Lanka-based conglomerate Aitken Spence PLC (ASP), which has leading market positions in leisure, logistics and power generation. We proportionately consolidate ASP’s financials with that of Melstacorp in arriving at the rating to reflect our view that Melstacorp’s access to ASP’s cash balances and future cash flows will be limited to its effective ownership of 51%.
We also believe that Melstacorp will only likely provide its proportionate share of support to ASP, if required, due to the subsidiary’s large public ownership.
Leading Alcoholic-Beverage Maker: Melstacorp’s 92.5%-owned subsidiary, Distilleries Company of Sri Lanka (DIST: AAA(lka)/Stable), accounts for over 60% of Sri Lanka’s spirits production and has been able to maintain its market leadership due to its entrenched DCSL brand and access to a country-wide distribution network. The complete advertising ban on alcoholic beverages acts as a high entry barrier and further strengthens DIST’s dominance. However, spirits makers’ volumes are likely to drop after the government revised excise duties to tax the manufacturers at higher rates than beer and wine makers from November 2017.
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