SL local currency rating under observation – Fitch

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Fitch Ratings has placed Sri Lanka’s Long-Term Local-Currency Issuer Default Rating (IDR) and associated instruments Under Criteria Observation (UCO) following the conversion of the agency’s Exposure Draft: Sovereign Rating Criteria to final criteria.

A summary of the changes introduced by the new criteria is available at: Fitch Ratings Publishes Final Sovereign Rating Criteria the UCO assignment indicates that ratings may change as a direct result of the final criteria. It does not indicate a change in the underlying credit profile, nor does it affect existing Outlooks.

Fitch will resolve the UCO status within six months. The outcomes will depend on Fitch’s assessment of the appropriate notching based on the new criteria. Not all issuers on UCO will have a rating change upon resolution.

Introduction of Modifiers at ‘CCC’: The recently published Sovereign Rating Criteria introduces +/- modifiers in the ‘CCC’ category. Sovereigns rated ‘CCC’ could experience a one-notch rating change, potentially migrating from ‘CCC’ to ‘CCC-’ or ‘CCC+’.

Factors that could, individually or collectively, lead to negative rating action/ downgrade: Existing rating sensitivities continue to apply. For more details, please see the recent rating action commentary on 20 May 2022. Factors that could, individually or collectively, lead to positive rating action/upgrade: Existing rating sensitivities continue to apply.

International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from ‘AAA’ to ‘D’. Best- and worst-case scenario credit ratings are based on historical performance.