Fitch assigns Vidullanka’s proposed sukuk ‘A+(lka)’ final rating

Fitch Ratings has assigned a final National Long-Term Rating of ‘A+(lka)’ to Sri Lanka-based renewable power producer Vidullanka PLC’s proposed Rs.500 million sukuk issuance.

The final rating is at the same level as the expected rating assigned on March 5, 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.

“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,” said Fitch in a rating commentary.

In addition to Vidullanka’s propensity to ensure the repayment of the sukuk, Fitch said the entity would 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. 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 licence 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.