ECONOMYNEXT – Vidullanka’s proposed listed secured sukuk issuance of 500 million rupees has been assigned an expected national long-term rating of ‘A+(lka)(EXP)’, by Fitch Ratings.
The proceeds from the issue will be used to refinance Vidullanka’s short-term loans and for funding working capital requirements.
“In addition to Vidullanka’s propensity to ensure the repayment of the sukuk, we believe the entity will also be required to ensure full and timely repayment of the sukuk’s obligations due to its various roles and obligations under the sukuk structure and documentation,” Fitch said.
The full statement is reproduced below:
Fitch Assigns Vidullanka PLC’s Proposed Sukuk ‘A+(lka)(EXP)’ Expected Rating
Fitch Ratings – Colombo/Singapore – 05 Mar 2025: Fitch Ratings has assigned Vidullanka PLC’s (A+(lka)/Stable) proposed listed secured sukuk issuance of LKR500 million an expected National Long-Term Rating of ‘A+(lka)(EXP)’.
Hatton National Bank PLC (HNB, AA-(lka)/Stable) is the trustee. The proceeds from the issuance will be used to refinance Vidullanka’s short-term loans and for funding working capital requirements.
The assignment of the final rating is subject to the receipt of the final documentation conforming to information already received by Fitch.
Key Rating Drivers
The proposed sukuk issuance’s expected rating is at the same level as Vidullanka’s National Long-Term Rating, as it will represent the issuer’s senior secured obligation.
We believe the issuer’s ability to satisfy payments due on the proposed sukuk will ultimately depend on the issuer satisfying its secured payment obligations to the trustee under the transaction documents, as described in the prospectus and other supplementary documentation.
In addition to Vidullanka’s propensity to ensure the repayment of the sukuk, we believe the entity will also be required to ensure full and timely repayment of the sukuk’s obligations due to its various roles and obligations under the sukuk structure and documentation, especially – but not limited to – the features explained below.
– Vidullanka as lessee will ensure sufficient funds are available to meet the ijarah payment (periodic distribution) payable to the trustee under the ijarah agreement on each ijarah payment date. Vidullanka can take other measures to ensure that there is no shortfall and that the payment of exercise price and ijarah payment are paid in full and in a timely manner.
– The trustee will have the right under the purchase undertaking to require Vidullanka to purchase and accept the transfer of all the trustee’s interest, rights, benefits and entitlements in and to the underlying assets at the exercise price. Repurchase is based on the exercise price and unpaid and accrued ijarah payments, if any.
– The sukuk is secured, ranks pari passu with the company’s other secured debt, and in priority to all other unsecured creditors to the extent of the security. The sukuk is secured by Vidullanka’s fixed assets and cash.
– Failure to pay the ijarah payment or the exercise price of the sukuk on the designated payment dates constitutes an event of default.
– Vidullanka will carry out maintenance and insure the underlying asset. The documentation includes financial reporting obligations, covenants and cross-default or cross-acceleration terms. The document does not include terms related to negative pledge or change of control.
– Vidullanka grants license to the lessor (HNB), its servants or agents to inspect and examine the underlying asset. If the lessee fails to comply, it will constitute a dissolution event.
– The transaction will be governed by the law of Sri Lanka. Fitch does not express an opinion on whether the relevant transaction documents are enforceable under any applicable law. However, Fitch’s rating on the proposed sukuk reflects the agency’s belief that Vidullanka will stand behind its obligations.
– When assigning ratings to the sukuk to be issued, Fitch does not express an opinion on the sukuk’s compliance with sharia principles. If the sukuk becomes non-shariah compliant, it is an event of default and the sukuk shall become immediately due and payable at the discretion of the trustee upon request or direction from the sukuk holders.
For more details on Vidullanka’s National Long-Term Rating, please see Fitch Upgrades 7, Revises 2 Sri Lankan Non-Financial Corporates’ Ratings on National Scale Revision and Fitch Affirms Sri Lanka’s Vidullanka PLC at ‘A+(Ika)’; Outlook Stable
Derivation Summary
The proposed sukuk’s expected rating is derived from Vidullanka’s National Long-Term Rating.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
– Negative rating action on Vidullanka’s National Long-Term Rating will lead to similar action on the expected sukuk rating.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
– Positive rating action on Vidullanka’s National Long-Term Rating will lead to similar action on the expected sukuk rating.
The expected rating could also be sensitive to changes in the role and obligation of Vidullanka under the sukuk’s structure and documents.
Sensitivities for Vidullanka’s National Long-Term Rating
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
– EBITDA net leverage sustained above 4.0x (end-2024: 0.9x)
– EBITDA interest coverage sustained below 1.8x (2024: 8.0x)
– Material increase in counterparty risk or the risk of repatriating cash flow from overseas
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
– Significant increase in operating scale and meaningful diversification of power plants
Issuer Profile
Vidullanka is a Sri Lanka-domiciled and listed renewable power producer, with total installed power generation capacity of approximately 51MW, including associates and joint ventures, at end-March 2024. Installed capacity consists of hydro (33MW), solar (14.7MW) and dendro (3.3MW). Operations are spread between Sri Lanka (38MW) and Uganda (13MW).
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Click here to access Fitch’s latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. Fitch’s macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.
(Colombo/Mar5/2025)
