Fitch Ratings has assigned a National Long-Term Rating of A(lka) to the proposed senior unsecured redeemable debentures of WindForce, an energy company in Sri Lanka, amounting to a maximum of 4 billion rupees.
The agency noted that this rating reflects WindForce’s expanding role as a key player in the renewable energy sector within Sri Lanka and other regional markets. The firm’s enhancement in resource diversification, along with stable cash flows secured through long-term power purchase agreements (PPAs), contributed to this positive assessment.
However, the rating faces limitations due to the credit quality of the National System Operator (NSO), the principal state-owned off-taker, which succeeded the Ceylon Electricity Board following its restructuring. Fitch highlighted that more than 80 percent of WindForce’s earnings before interest and taxes (EBIT) is generated from cash flows associated with NSO.
The agency’s announcement stated: “Fitch Ratings has assigned a National Long-Term Rating of A(lka) to WindForce PLC’s proposed senior unsecured redeemable debentures of up to LKR4 billion.” The debentures are rated one notch lower than WindForce’s overall National Long-Term Rating (A+(lka)/Stable) due to increasing structural subordination from secured debt at its operating subsidiaries, which are used for capacity expansion.
Fitch’s analysis indicates that WindForce’s EBITDA net leverage is expected to increase in the fiscal year ending March 2027 (FY27) due to substantial debt-funded capital expenditures aimed at new generation plants. However, this leverage is anticipated to decrease as these plants become operational, maintaining a Stable Outlook. Should the company fail to reduce its leverage in FY28 as expected, it could negatively affect WindForce’s rating.
Key factors influencing the rating include temporarily high leverage due to capital expenditures. WindForce plans to invest over LKR40 billion in solar and wind energy projects over the next two years, with most of these investments postponed to FY27 due to extended negotiations with suppliers. As a result, EBITDA net leverage is projected to peak at 9.0x in FY27, exceeding earlier forecasts. A delay in project commissioning is expected, with cash flows anticipated to begin in FY28 when leverage is likely to decrease to 5.0x. The capital outflows primarily relate to a 100MW solar facility with integrated battery storage and a 130MW battery energy storage system across 13 sites nationwide.
The company faces low execution risks for these projects, owing to its established track record in similar initiatives, collaboration with experienced joint-venture partners, and the relatively straightforward construction involved in solar and wind facilities. Regulatory approvals and offtake agreements are secured, and the necessary infrastructure for energy evacuation is either completed or in the process of being established. The long-term PPAs with NSO are set at fixed tariffs, reducing price volatility, while priority dispatch for renewable generators ensures reliable demand.
WindForce’s rating is further limited by the creditworthiness of NSO, which relies on support from the Sri Lankan government (Long-Term Local-Currency Issuer Default Rating: CCC+; Long-Term Foreign-Currency IDR: CCC+). In FY23-FY25, WindForce derived about 70% of its EBIT from the previous state-owned offtaker, CEB, with this share projected to increase to around 80% in FY25 after the commissioning of the Kebithigollawa solar project. Cash flow dependency on NSO is expected to grow further in FY26-FY29 as new projects commence.
Fitch has identified potential risks regarding the implementation of cost-reflective tariffs by the state utility, which could impact its financial standing and affect payments to local power producers. The government faces competing priorities related to inflation management, the financial health of state utilities, and the overall fiscal situation. CEB’s EBIT fell into negative territory in FY25 as costs surged beyond approved tariff increases. WindForce’s average receivable days were around 75 days as of December 2025, consistent with seasonal trends, compared to a peak of approximately 350 days in FY23.
Despite these challenges, WindForce’s EBITDA margin is expected to stabilize around 65% for FY26-FY27, similar to FY25, before rising to approximately 70% in FY28 with contributions from new projects. The company’s PPAs provide long-term cash flow visibility, with an average remaining contract duration exceeding 10 years, although generation volumes may be influenced by seasonal and climatic variations. This risk is mitigated by WindForce’s diverse portfolio comprising wind (74MW), solar (55MW), and hydro (15MW) across 23 power plants, excluding associates and joint ventures.
In terms of peer comparisons, WindForce’s rating is one notch lower than that of Lakdhanavi Limited (AA-(lka)/Stable), a domestic power producer and engineering contractor. This difference arises from Lakdhanavi’s larger operational scale as a critical base-load power provider in Sri Lanka, which allows it to receive priority cash flows from CEB even during periods of financial strain. Lakdhanavi’s business diversification, including operations and maintenance services and manufacturing capabilities, further enhances its position.
Conversely, Resus Energy PLC (A-(lka)/Stable), another domestic power producer, is rated two notches below WindForce. Despite benefiting from contractual revenue through its PPAs with the state-owned off-taker, Resus’s lower rating is attributed to tighter liquidity and a smaller operational scale compared to WindForce.
Vidullanka PLC (A+(lka)/Stable) shares the same rating level as WindForce. Although WindForce has a larger operational capacity and greater resource diversification, Vidullanka’s rating reflects its reliance on the Ugandan state-owned utility and its focus on hydropower generation. While Vidullanka’s revenue mainly originates from overseas, exposing it to repatriation risks, its consistent track record of overseas receipts adds some stability.
Fitch’s key assumptions for rating include an average revenue growth of 4% in FY26-FY27, increasing to around 60% in FY28 as new projects become operational, an EBITDA margin of approximately 65% for FY26-FY27, and a steady receivable period of around 40 days. Capital expenditures are projected at LKR2 billion for FY26 and LKR40 billion for FY27, with an anticipated dividend payout of 80% of the previous year’s profits.
Factors that could lead to a negative rating action include sustained EBITDA net leverage exceeding 5.0x or EBITDA interest coverage falling below 1.5x for extended periods. Conversely, a significant and lasting reduction in the implied credit risk of the key off-taker could lead to a positive rating adjustment.
WindForce’s liquidity is contingent upon the timely collection of dues from NSO. As of December 31, 2025, the company reported LKR1.6 billion in readily available cash and had access to approximately LKR7 billion in unutilized, albeit uncommitted, credit lines from local banks, against LKR3.0 billion in debt maturing within the next year. This upcoming debt primarily consists of the current portion of long-term financing secured for its power plant investments.
In the near to medium term, WindForce is expected to experience negative free cash flow due to the high capital expenditures. However, the company has sufficient access to domestic banks, as most financial institutions are willing to extend longer-term financing for its operational power plants that have over 10 years remaining on their PPAs.
