No material impact of Sri Lanka crisis on CRISIL-rated entities

The crisis in Sri Lanka intensified after the COVID-19 pandemic began, which badly affected tourism, one of the mainstays of the economy. Then in April 2021, a sudden ban on the use of chemical fertilisers—that was subsequently lifted—led to food shortages. The country also has perilously low forex reserves, CRISIL observed in a note.

For the 11 months from May 2021 to March 2022, India’s exports to and imports from Sri Lanka totaled $5.9 billion, or just 0.64 per cent of India’s total trade.

Exports to Sri Lanka, at nearly $5 billion, account for 1.3 per cent of India’s total exports. These levels have remained range-bound in the past three fiscals.

Of the top 50 countries with which India trades, Sri Lanka is ranked 38 or 39 in past three fiscals 2020-2022. Coffee, tea, sugar, cotton, cereals, edible fruits and nuts, rubber, animal, vegetable fats, paper pulp and other agro-products account for nearly 30 per cent of the total trade (both imports and exports) with Sri Lanka.

“A few companies in the auto and FMCG sectors could see some impact due to their modest Sri Lankan operations. Also, there could be some impact on shipping companies that depend on feeder cargo activity. On the other hand, orthodox tea and readymade garment exporters could see some benefit from improved demand, or higher realisation, as supplies from Sri Lanka dwindle,” said Somasekhar Vemuri, senior director, CRISIL Ratings.

Indian shipping companies, which carry cargo from smaller ports to Colombo may see some impact because of change in sea routes of mainline operators to any other port. To replicate this shift may not be cost-effective for some shipping companies and hence the impact would vary on case-to-case basis, CRISIL said.

Conversely, ports in India, particularly those on eastern and southern coast of India are expected to see some benefit from diversion of transshipment and other shipping activities from Colombo.

There could be some specific companies which could have large exposure to the country and hence may be impacted more, CRISIL added.

Fibre2Fashion News Desk (DS)