Fitch downgrades Kotagala

Fitch Ratings said it downgraded Kotagala Plantations plc's national long-term rating to CC(lka) from B+(lka).

The agency also said it downgraded the national long-term rating on Kotagala's outstanding listed senior secured debentures of 1 billion in Sri Lankan rupee to CC(lka) from B+(lka).

The downgrades follow continued deterioration in the company's liquidity, as its operating EBITDA weakened further in the financial year that ended in March 2016, Fitch said.

This was due to falling tea and rubber prices, high labor costs and poor labor productivity, the agency said.

Consequently, Kotagala's operating EBITDA of 30 million in Sri Lankan rupee was insufficient to cover its borrowing costs of 503 million in Sri Lankan rupee and the company had to utilize cash reserves to meet most of its financial obligations, Fitch said.

The profitability of Kotagala's tea and rubber plantations has improved in the previous few months with rebounding global prices, but the agency said it does not believe the improvement is sufficient to offset the sector's structural decline stemming from continued supply-side pressure.

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