ECONOMYNEXT – Sri Lanka-based renewable power producer Vidullanka’s proposed 500 million rupees sukuk issuance has been assigned a final National Long-Term Rating of ‘A+(lka)’, by Fitch Ratings.
“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,” Fitch said.
“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, listing out the features.
The full statement is reproduced below:
Fitch Assigns Vidullanka PLC’s Proposed Sukuk ‘A+(lka)’ Final Rating
Fitch Ratings – Colombo/Singapore – 08 May 2025: Fitch Ratings has assigned a final National Long-Term Rating of ‘A+(lka)’ to Sri Lanka-based renewable power producer Vidullanka PLC’s proposed LKR500 million sukuk issuance. The final rating is at the same level as the expected rating assigned on 5 March 2025.
The rating of the proposed sukuk issuance is at the same level as Vidullanka’s National Long-Term Rating, as it will represent the issuer’s senior secured obligation.
Hatton National Bank PLC (HNB, AA-(lka)/Stable) is the trustee. Proceeds from the issuance will be used to refinance Vidullanka’s short-term loans and for funding working capital requirements.
Key Rating Drivers
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 the 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 there is no shortfall and that the 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 with assets of a specific project, as well as cash held in a designated account, ranks pari passu with the company’s other secured debt, and ranks in priority to all other unsecured creditors to the extent of the security.
– 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-sharia 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 (published 22 January 2025) and Fitch Affirms Sri Lanka’s Vidullanka PLC at ‘A+(Ika)’; Outlook Stable (published 24 July 2024).
Peer Analysis
The proposed sukuk’s rating is derived from Vidullanka’s National Long-Term Rating.
RATING SENSITIVITIES
Rating Sensitivities for the Sukuk Rating
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 sukuk’s 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 sukuk’s rating.
– The sukuk rating could also be sensitive to changes in Vidullanka’s role and obligations under the sukuk’s structure and documents.
Rating 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.
ESG Considerations
Not applicable.
(Colombo/May9/2025)
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