S&P Global Ratings Wednesday lowered its long-term foreign currency sovereign rating on Sri Lanka to ‘CC’ from ‘CCC’. At the same time, S&P lowered the long-term local currency sovereign rating to ‘CCC-’ from ‘CCC’. The outlook on the long-term ratings is negative.
In addition, S&P affirmed its ‘C’ short-term foreign and local currency sovereign ratings. S&P also revised down transfer and convertibility assessment to ‘CC’ from ‘CCC’,
“The negative outlook on the ratings reflects the high risk to commercial debt repayment in the context of Sri Lanka’s economic, external, and fiscal pressures,” S&P said in a statement.
S&P said it could lower the foreign currency rating to ‘SD’ (Selective Default) upon confirmation that the government has missed a coupon or principal payment on commercial foreign currency debt, including its upcoming April 18 coupon payment on international sovereign bonds, or upon confirmation of debt restructuring terms.
S&P said it could lower the local currency ratings if there are indications of nonpayment or restructuring of rupee-denominated obligations.
There are limited upside scenarios to the ratings currently. Upon completion of any bond restructuring, S&P will assign new foreign and local currency sovereign credit ratings that reflect Sri Lanka’s post-exchange creditworthiness.
Amid steeply rising external funding pressures, and alongside increasingly widespread social and political protests, the Sri Lankan government announced on April 12 that it will suspend debt servicing on its foreign currency obligations.
Sri Lanka has coupon payments due on April 18 for its 2023 and 2028 International Sovereign Bonds and S&P expects the government to miss paying these coupons, and therefore lowered the foreign currency sovereign ratings on Sri Lanka to ‘CC’.
“We are likely to lower Sri Lanka’s foreign currency ratings to ‘SD’ upon confirmation of nonpayment of interest or principal on any of its commercial foreign currency obligations, including coupon payments on its International Sovereign Bonds due April 18,” the S&P said.