Fitch downgrades SL’s Oxford College of Business to ‘BBB+(lka)’; Outlook Negative

Fitch Ratings has downgraded Sri Lanka-based Oxford College of Business (Private) Limited’s National Long-Term Rating to ‘BBB+(lka)’, from ‘A(lka)’. The Outlook is Negative. 

The downgrade reflects Fitch’s expectation that the issuer’s cash and cash equivalents will be depleted by the end of the financial year to March 2025 (FY25) and trade payables may be deferred, as free cash flow will otherwise be insufficient to meet large debt maturities in the next 12-18 months amid limited financing access. 

The Negative Outlook reflects increased business risk, as Fitch believes the deferral of trade payables could affect its relationships with key overseas suppliers.

Oxford College of Business’ short-term debt surged to Rs.297 million in FY24, as it took on new term loans to settle its past-due trade payables, which increased by 100 percent in 2022 to 2023, leading to 423 outstanding payable days in FY23 (FY24: 292 days), amid Sri Lanka’s foreign-currency crisis. Fitch expects Oxford College of Business to again defer its trade payables to meet short-term debt repayments in the next 12-18 months and forecast its cash and cash equivalents to be depleted to less than Rs.10 million by FY25 (FY24: Rs.90 million). 
Oxford College of Business paid Rs.57 million of debt in 1QFY25 with internal cash, with the help of an increase in trade payables by Rs.100 million during the period. Fitch estimates payables will reach Rs.525 million by FY25. The company’s funding is concentrated with one local bank, with debt secured mostly against fixed assets, time deposits and personal guarantees from its major shareholder. Oxford College of Business lacks near-term contingent bank facilities to manage cash flow and faces debt covenants that constrain its ability to obtain funding from other banks without approval from the existing lender.

Educational programmes affiliated with the University of Bedfordshire (UoB) in the UK account for the majority of the company’s trade payables. Fitch forecasts revenue from these courses to remain at around 75 percent of total revenue in the medium term, exposing Oxford College of Business to high supplier concentration. Trade payables increased significantly during FY22-FY23 amid Sri Lanka’s financial crisis but there is limited visibility over suppliers’ treatment of payment deferrals now that the economy has normalised.

Oxford College of Business is likely to underperform Fitch’s forecasts due to delays in diversifying its cash flow and suppliers via its UK branch and collaboration with Arden University. Revenue from Arden University programmes was recognised from 1QFY25 but Fitch does not expect a large contribution in the medium term, as established UoB courses are better-ranked and priced lower.

On the other hand, student additions from UoB-linked courses outperformed Fitch’s expectations, as the company stepped up marketing efforts. Increasing student volume should absorb fixed cost, which Fitch expects will support an increase in the EBITDA margin to around 27.0 percent in FY25-FY27, from 24.0 percent in FY24.

Oxford College of Business charges course fees in Sri Lankan rupees for UoB courses, while payments to UoB must be settled in foreign currency. This introduces foreign-currency risk, as local-currency depreciation could increase the value of trade payables. Oxford College of Business has passed on currency risk to customers in the past but this could weaken course affordability. Fitch has not factored in foreign-currency revenue in its forecasts, due to delays in the commencement of the UK operation.