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12 January, 2011 09:45 AM Source: Lanka Business Online - LBO

The credit rating of Vidullanka, a Sri Lankan mini-hydro operator, has been upgraded to A- with a stable outlook while its short-term rating has been confirmed at P2, RAM Rating Lanka said.

The upgrade reflects the company’s improving financial profile and conservative funding strategy, the rating agency said.


Vidullanka two mini-hydro power plants with a combined capacity of 5.2Mega Watts and sells electricity to the Ceylon Electricity Board (CEB), Sri Lanka's state power utility.

Steady income and conservative strategy helped Vidullanka ease its debt levels, as the company’s gearing ratio improved from 0.32 times in the financial year ended March 2009 to 0.24 times in 2010.

"Over the short-term, the company’s debt levels are expected to recede further as long-term borrowings will also reduce, with proceeds from a rights issue completed in November 2010," RAM Ratings said.

"Going forward, we see the company’s gearing levels to remain below 0.45 times, even after factoring additional borrowings for new projects."

The upgrade also takes into consideration Vidullanka's efforts to build new plants.

"With regard to the new projects, the company would only fund up to 60 percent of project cost with borrowings," RAM Ratings said.

"Meanwhile, the Company’s ratings are supported by its sturdy financial profile, established track record, and favorable contract terms."

Vidullanka’s operating profit before interest and tax margins improved to 52.22 percent by March 2010 from 49.47 percent in March 2009 and to a further 69.39 by end-September 2010.

The wider margins came from greater power generation which translated to better return on capital, which increased to 30.33 and 21.04 over the same period (which period?).

With the Company also retiring debts using internally-generated capital, its fund from operations debt coverage ratio has strengthened from 0.73 times to 1.29 times.

"Moreover, with easing debt levels, the company’s gearing improved to 0.17 times by end-September 2010 from 0.32 times as at end-March 2010," the rating agency said.

In addition, Vidullanka's subsidiary, Vidul Construction Limited (VCL) successfully completed the joint venture project on time.

VCL is specialised in feasibility studies, designing, building, operating and maintaining power plants.

Under power purchase agreements (PPA) signed with the CEB, which is the Company’s sole customer, the national utility company is obliged to purchase all electricity generated by the company over the tenure of the contracts.

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