Fitch Ratings has affirmed the National Long-Term Rating of Sri Lanka-based power generator WindForce PLC at ‘A+'(lka) with a stable outlook. This decision is based on the company’s expanding role as a significant renewable power generator both within Sri Lanka and in several regional markets.

The rating reflects WindForce’s increasing scale, diversified resources, and stable cash flows secured through long-term power purchase agreements (PPAs). However, the rating is constrained by the credit profile of the Ceylon Electricity Board (CEB), which serves as the sole electricity transmitter and distributor in Sri Lanka.

Fitch anticipates an increase in WindForce’s EBITDA net leverage by the financial year ending March 2027 (FY27), due to significant debt-funded capital expenditure for new generation plants, with reduction expected thereafter as the plants become operational. Failure to deleverage by FY28 as anticipated could negatively impact WindForce’s rating.

Key Rating Drivers

Temporarily High Leverage on Capex: WindForce plans to invest over LKR40 billion in solar and wind power plants over the next two years, with most expenditures projected for FY27. This includes a major 100MW solar plant with integrated battery storage, the largest renewable energy project in Sri Lanka, developed in partnership with Lakdhanavi Ltd. Fitch estimates WindForce’s generation capacity will exceed 200MW by FY28. The company’s EBITDA net leverage is expected to peak at around 6.8x in FY27, before dropping to approximately 4.6x by FY28 as new plants commence operations. Execution risks are considered low, supported by the company’s experience in similar projects, regulatory approvals, and established offtake agreements. Additionally, long-term PPAs with CEB at preset tariffs help mitigate demand risk.

Counterparty Constraints: WindForce’s rating is limited by the credit profile of CEB, despite improvements in its financial performance. CEB’s rating is influenced by support from the Sri Lankan government. WindForce derived around 70% of its EBIT from CEB between FY23 and FY25, with this percentage expected to rise to 80% by FY25 following the Kebitigollewa solar project. WindForce’s exposure to CEB is projected to grow further from FY26 to FY29 as new projects are launched.

Risks to Cost-Reflective Tariffs: Challenges remain regarding CEB’s implementation of cost-reflective tariffs, which could impact its financial stability and ability to settle payments to domestic power producers. This arises from government priorities in managing inflation and the financial health of CEB. CEB’s EBIT turned negative in 1Q25 due to rising costs outpacing approved tariff increases, though recent tariff adjustments have improved its EBIT to breakeven levels by 9M25. WindForce’s average receivable days have stabilized at around 40 as of 30 September 2025, down from a peak of approximately 350 days in FY23.

Steady EBITDA Margin: WindForce’s EBITDA margins are expected to improve from around 65% in FY25 to approximately 70% from FY26 to FY28, reflecting normalized operating expenses post-repair and maintenance activities at wind plants. The company’s PPAs provide long-term cash flow visibility, with a weighted-average remaining contract life exceeding 10 years. However, generation volume could be affected by seasonal and climatic conditions, mitigated by a diversified portfolio, comprising 74MW of wind, 55MW of solar, and 15MW of hydro power, totaling 145MW on an alternating current equivalent basis across 23 power plants, excluding associates and joint ventures.

Peer Analysis: WindForce is rated one notch below Lakdhanavi, a domestic power producer and EPC contractor, due to Lakdhanavi’s larger scale and greater geographic and business diversification. Both companies have significant exposure to CEB, but Lakdhanavi’s additional operations in O&M services, transformer and switchgear manufacturing, and galvanizing services provide diversification. CEB is likely to prioritize payments to Lakdhanavi due to its critical role in maintaining key power plants and investments in large LNG power projects.

Resus Energy PLC is rated two notches below WindForce, benefiting from similar contractual revenue visibility through its PPAs with CEB, but facing tighter liquidity and smaller operating scale. Vidullanka PLC shares the same rating as WindForce but has a smaller operating capacity and concentrated hydropower generation, offset by its international exposure and steady overseas cash flow.

Fitch’s Key Rating-Case Assumptions:

• Revenue to remain flat in FY26, with over 30% annual growth in FY27 and FY28 from new projects.
• EBITDA margin of around 70% in FY26 and FY27.
• Receivable days steady at around 40.
• Capital expenditure of approximately LKR15 billion in FY26 and around LKR30 billion in FY27.
• Dividend payout of 80% of the prior year’s profit.

RATING SENSITIVITIES:

Negative Rating Action/Downgrade:

• EBITDA net leverage above 5.0x for an extended period.
• EBITDA interest coverage below 1.5x for an extended period.

Positive Rating Action/Upgrade:

• A sustained and substantial reduction in counterparty risk, as indicated by a continued improvement in CEB’s credit profile.

Liquidity and Debt Structure:

WindForce’s liquidity is dependent on the timely collection of dues from CEB. As of 30 September 2025, the company reported over LKR1.3 billion in readily available cash and access to around LKR7 billion in unutilized, albeit uncommitted, credit lines from local banks, against LKR1.4 billion of debt maturing in the next 12 months. The maturing debt mainly consists of the current portion of long-term debt used to fund investments in its power plants. While negative free cash flow is anticipated in the near-to-medium term due to high capital expenditure, WindForce has adequate access to domestic banks, which are willing to provide longer-tenured facilities for its operational power plants with more than 10 years remaining under their PPAs.

Issuer Profile:

WindForce is a leading renewable power producer in Sri Lanka, with an installed power generation capacity of approximately 145MW (excluding associates and joint ventures) as of 31 March 2025. Most of this capacity is located in Sri Lanka (132MW), with the remainder in Uganda (13MW). The company is listed on the Colombo Stock Exchange.