Fitch Ratings has granted Aitken Spence Hotel Holdings PLC (ASHH) a National Long-Term Rating of ‘AA+(lka)’, with a Stable Outlook. This rating is indicative of the support from its parent company, Aitken Spence PLC (ASP), driven by ‘High’ operational and strategic incentives, although the legal incentives are assessed as ‘Low’, according to Fitch’s Parent and Subsidiary Linkage (PSL) Rating Criteria.

ASHH’s Standalone Credit Profile (SCP) is rated at ‘aa-(lka)’. This rating is backed by cash flow from its hotel portfolio, comprising 15 owned and four managed properties, primarily located in the Maldives and Sri Lanka. The company benefits from low leverage and ample funding access, although it faces high exposure to the challenging economic landscape in the Maldives.

Fitch has also assigned a ‘AA(lka)’ National Long-Term Rating to ASHH’s proposed senior unsecured debentures, valued up to LKR5 billion. These debentures are rated one notch below the issuer rating due to material subordination to secured bank debt, which constitutes a significant portion of ASHH’s debt structure. The proceeds from these debentures will be used to settle existing bank debt and payables to ASP, as well as fund capital expenditures.

Key Rating Drivers

Parent’s High Strategic Incentives: Fitch evaluates ASP’s strategic incentives to support ASHH as ‘High’. ASHH is expected to contribute around 65% of ASP’s EBITDA and over 50% of the group’s assets in the medium term. The forecast suggests ASHH’s EBITDA will grow at a compound annual growth rate (CAGR) of about 10% from the fiscal years ending March 2026 to March 2029 (FY26-FY29), fueled by rising capital expenditures for hotel refurbishments and product repositioning, which are anticipated to enhance room rates and profit margins.

ASHH’s US dollar-pegged cash flow offers a ‘Medium’ competitive advantage to ASP, supporting the group’s operational and financial flexibility during Sri Lanka’s economic crisis.

High Operational, Low Legal Incentives: ASP’s operational incentives to support ASHH are rated as ‘High’, reflecting significant board and management overlap and a shared brand. ASHH’s services are integrated with ASP’s destination management business, despite ASP having external suppliers. Legal incentives are deemed ‘Low’, with expectations that debt guaranteed by ASP will decrease over time from around 35% of ASHH’s total debt by the fiscal year ending 2025 (FYE25). ASP also provides intragroup liquidity support, including LKR2.7 billion in advances to ASHH at FYE25.

Ultimate Parent Support: ASP’s credit profile includes support from its 51% parent, Melstacorp PLC (rated AAA(lka)/Stable). Melstacorp has ‘Medium’ strategic incentives to support ASP, with operational and legal incentives being ‘Low’. ASP’s EBITDA is anticipated to contribute about 25%-30% to Melstacorp’s EBITDA over the medium term, offering more growth potential than its parent’s core beverage business. Support is expected to flow to ASHH from its ultimate parent, Melstacorp, through ASP, if necessary, given ASHH’s substantial contribution to ASP’s credit profile.

Hotel Operations Drive Cash Flow: ASHH’s hotel operations are central to both ASHH and ASP’s credit profiles, generating about 65% of ASP’s EBITDA. ASHH owns, operates, and manages properties with over 2,600 rooms, mainly in the Maldives (accounting for 70% of ASHH’s EBITDA) and Sri Lanka. Tourist arrivals in the Maldives are projected to increase by mid-single digits in 2025, following a 9% growth in 2024 as demand from China and Russia rebounds. ASHH’s EBITDA margins are expected to remain stable, averaging 25% over FY26-FY29, supported by increased investments in its portfolio.

Cash Flow-Debt Mismatch: ASHH’s credit profile is challenged by its exposure to the fragile Maldivian economic environment, where Fitch believes some form of default event is likely within the rating horizon. The majority of ASHH’s EBITDA is derived from its Maldivian hotels, while most of its borrowings are with Sri Lankan banks, exposing ASHH’s liquidity to the risk of tightening currency regulations in the Maldives if sovereign distress worsens.

Maldivian Currency Regulations: In 2024, the Maldives Monetary Authority mandated the conversion of 20% of gross foreign currency sales to local currency, exempting businesses with offshore debt servicing obligations. ASHH, backed by ASP, has strong access to Sri Lankan banks, allowing it to extend its annual term loan repayments. This, along with maintaining high cash balances, mitigates liquidity risk.

Modest Leverage Despite High Capex: Fitch anticipates ASHH’s financial profile to remain robust despite increased capital expenditures, projecting EBITDAR net leverage—including lease liabilities—at 2.5x by FYE26 and 2.9x by FYE27. Capital expenditures are expected to rise to 11% of revenue in FY26 and 13% in FY27, reflecting refurbishment investments deferred in recent years due to economic challenges. Funding will likely comprise new debt, operating cash flow, and accumulated cash and equivalents. EBITDAR fixed-charge coverage, including lease rent, is projected to remain around 3.0x.

Peer Analysis

ASHH’s SCP of ‘aa-(lka)’ benefits from support from its immediate parent, ASP, which itself receives support from Melstacorp, ASHH’s ultimate parent. ASHH’s SCP is one notch lower than DSI Samson Group (Private) Limited (AA(lka)/Stable), which benefits from more defensive demand. DSI operates an integrated supply chain, with significant domestic market share in footwear and tyre segments. However, its rating is constrained by cyclical demand in a competitive market, and DSI’s leverage is lower than ASHH’s.

Singer (Sri Lanka) PLC (AA-(lka)/Stable) is rated at the same level as ASHH’s ‘aa-(lka)’ SCP. Sri Lanka’s largest consumer-durable retailer, Singer’s credit profile is weighed down by its finance company subsidiary, Singer Finance (Lanka) PLC (BBB+(lka)/Stable). Singer’s core consumer electronics business benefits from strong brands and an extensive distribution network. The company enjoys solid local financing access, with low leverage of around 3.0x when finance company debt is excluded.

Steel cable manufacturer Sierra Cables PLC (A+(lka)/Stable) is rated one notch below ASHH’s ‘aa-(lka)’ SCP. Sierra operates in a fragmented industry, catering to construction projects while market leaders dominate retail sales. Demand for Sierra’s products is cyclical, but import restrictions during the Covid-19 pandemic and Sri Lanka’s economic crisis boosted demand for local cables. Sierra is smaller in scale compared to ASHH, as measured by EBITDA, while ASHH benefits from stronger access to domestic banks.

Fitch’s Key Rating-Case Assumptions

• Revenue growth of 6% in FY26 and 4% in FY27, supported by stable demand from source markets and increased room rates following refurbishments.
• The EBITDA margin to remain stable at around 25% in FY26, before a modest decline to 23% in FY27 due to temporary hotel closures for refurbishments.
• Capital expenditures to rise to around 12% of annual revenue in FY26-FY27 for refurbishments, with no ordinary dividends, consistent with ASHH’s recent practices.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:

• Weakening of ASP’s incentives to support ASHH
• Weakening of Melstacorp’s incentives to support ASP
• Sustained increase in ASHH’s EBITDAR net leverage to above 3.5x
• Sustained weakening in ASHH’s EBITDAR fixed charge cover to below 2.5x
• Weakening of ASHH’s liquidity, including a significant increase in the risk of repatriating cash flow out of the Maldives

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:

• An upgrade is not anticipated in the medium term due to ASHH’s exposure to Maldivian currency regulations and sovereign risk, amid its cash flow-debt mismatch.

Liquidity and Debt Structure

ASP’s cash balance was around LKR43 billion as of FYE25, with LKR10 billion held at ASHH and an additional LKR10 billion at the holding company level. This cash balance, along with Fitch-forecasted free cash flow (post-capex) for the group, supports liquidity. These resources, coupled with ASP’s strong access to Sri Lankan banks as a local blue-chip corporate, aid the group’s term-loan repayments of around LKR9 billion and the rollover of LKR20 billion of short-term working capital debt and overdrafts in FY26. ASHH accounted for LKR7 billion of the term-loan repayments and LKR6 billion of the short-term facilities.

Issuer Profile

ASHH owns and manages hotel properties in Sri Lanka, the Maldives, India, and Oman. The group had an inventory of over 2,600 rooms in FY25 across its 15 owned properties and four managed properties.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

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