ECONOMYNEXT – Fitch Scores has printed the nationwide long-term score of ‘AAA(lka)’ for Sri Lankan conglomerate Hayleys’s proposed senior unsecured redeemable debentures of as much as 7 billion rupees.
“We imagine there will probably be restricted subordination threat to debenture holders from secured debt on the holding firm and debt at subsidiaries, which can rank forward of the debentures,” Fitch stated.
The proposed debentures are rated consistent with Hayley’s Nationwide Lengthy-Time period Ranking and present unsecured notes.
The total assertion is reproduced under:
Fitch Publishes ‘AAA(lka)’ Ranking for Hayleys’ Proposed Debentures
Fri 21 Mar, 2025 – 9:13 AM ET
Fitch Scores – Colombo/Singapore – 21 Mar 2025: Fitch Scores has printed the Nationwide Lengthy-Time period Ranking of ‘AAA(lka)’ for Sri Lankan conglomerate Hayleys PLC’s (AAA(lka)/Secure) proposed senior unsecured redeemable debentures of as much as LKR7 billion.
The proposed debentures are rated consistent with Hayley’s Nationwide Lengthy-Time period Ranking and present unsecured notes as a result of we imagine there will probably be restricted subordination threat to debenture holders from secured debt on the holding firm and debt at subsidiaries, which can rank forward of the debentures. The proceeds from the debentures will probably be used to repay the corporate’s present short-term debt.
Hayleys’ score displays its massive working scale and diversification throughout a number of outstanding companies. Its important export earnings drive sustainable working money stream, regardless of non permanent challenges in some segments. We forecast the corporate’s monetary profile to stay commensurate with its score over the subsequent two years.
Key Ranking Drivers
Income to Rise: We count on income to rise by about 10% within the monetary 12 months ending March 2025 (FY25), following a 12% decline within the earlier monetary 12 months. This will probably be supported by the transportation and logistics and shopper and retail segments, which account for 38% of income.
Moreover, a recovering home financial system is reviving building, tourism and retail demand, which bodes effectively for the development materials, leisure, and shopper and retail segments, which comprise 22% of the corporate’s income. Value-reflective power pricing will proceed to drive demand for renewable power sources, supporting the tasks and engineering section, which contributes 5% of income.
Modest Leverage; Enhancing Protection: We count on EBITDAR web leverage to extend to three.5x in FY25 (FY24: 3.3x), pushed by capex and the next dividend payout. We forecast capex of round LKR22 billion throughout FY25-FY28, with the bulk allotted to the logistics and tasks divisions. Nevertheless, we count on EBITDAR web leverage to lower from FY26-FY28, supported by bettering money flows. Hayleys’ financing prices ought to decline amid falling rates of interest, resulting in an enchancment in EBITDAR fastened cost protection to roughly 3.0x over the subsequent few years, up from round 2.0x in FY24.
Geographic and Enterprise Diversification: Eight companies generate 80% of group EBIT. Direct and oblique exports account for 54% of income, with solely 30% from Europe and the US, indicating low publicity to slower-growth developed markets. Hayleys’ manufacturing areas are additionally diversified past Sri Lanka. Solely 55% of its purification section capability is in Sri Lanka, with the remainder in Thailand and Indonesia. The hand safety section, which produces rubber gloves, additionally operates in Thailand, the world’s largest supply of pure rubber.
Sturdy Market Presence: Hayleys is a frontrunner in Sri Lanka’s logistics, consumer-durable retail and tea export industries. It additionally has a outstanding share of the fragmented world hand safety and coconut shell-based activated carbon purification markets. It has robust relationships with prospects, however with important buyer focus in some companies, though the chance is mitigated by excessive switching prices and its established relationships. Hayleys’ aggressive place is strengthened by its vertical integration and powerful relationships with suppliers.
Excessive Prices Weigh on Margin: We count on greater charcoal costs within the purification section, which contributes 14% of EBIT, to weigh on margins. Prices will rise as a consequence of local weather change’s impact on the coconut provide chain, solely a part of which can be handed on to prospects.
The plantation sector’s margin may even be squeezed by a proposed day by day wage hike. Excessive home power prices may even stress Hayleys’ margin amid the implementation of cost-reflective tariffs. Nevertheless, the detrimental elements could also be mitigated by a extra secure home forex and rising adoption of renewable power at most manufacturing areas.
Derivation Abstract
Home conglomerate Melstacorp PLC (AAA(lka)/Secure) has extra defensive money stream than Hayleys, supported by its market management within the protected spirits market. In the meantime, Hayleys is uncovered to cyclical end-markets in a few of its segments with unstable demand, however advantages from higher product and geographic diversification, which boosts its working scale by way of EBITDA, whereas Melstacorp’s operations are largely concentrated in Sri Lanka.
We imagine Melstacorp has a stronger enterprise profile, resulting in robust optimistic free money stream technology. Hayleys’ free money stream is generally detrimental, reflecting tighter margins from stiff competitors and excessive capex. Consequently, Hayleys’ score sensitivities are tighter than these of Melstacorp for the ‘AAA(lka)’ score.
Home conglomerate Sunshine Holdings PLC (AA+(lka)/Secure) is rated one notch under Hayleys to mirror its smaller working scale, restricted geographic diversification and the regulatory threat at a few of its companies, that are counterbalanced by its stronger monetary profile with decrease leverage. Sunshine is extra conservative with its enlargement technique than Hayleys, with a concentrate on increasing solely its core companies with out pressuring its steadiness sheet. In distinction, Hayleys has been opportunistically increasing into cyclical end-markets to enhance diversification, with the largely debt-funded technique weighing on its steadiness sheet.
Our score evaluation of Hayleys leads to the next score than that for giant home banks, non-bank monetary establishments and insurance coverage corporations, that are extra uncovered to sovereign stress as a consequence of holdings of huge sovereign-issued securities for regulatory causes. The massive monetary establishments even have a broader publicity to numerous financial sectors.
Key Assumptions
Fitch’s Key Assumptions Inside Our Ranking Case for the Issuer:
– Income to rise by 10.0% in FY25 and eight.0% in FY26, supported by the stronger home financial system and restoration in export markets.
– EBITDAR margin of round 12.0% in FY25 (FY24: 12.0%) earlier than stabilising at round 12.5% thereafter.
– Web working-capital cycle to stay secure at 120 days in FY25 and enhance to 115 days afterwards on higher stock days.
– Annual capex of round LKR22 billion, or 4% of income, from FY25-FY28.
RATING SENSITIVITIES
Components that would, individually or collectively, result in detrimental score motion/downgrade:
– Group EBITDAR web leverage rising above 4.0x on a sustained foundation.
– Group EBITDAR fixed-charge protection falling under 2.0x on a sustained foundation.
Components that would, individually or collectively, result in optimistic score motion/improve:
– There is no such thing as a scope for an improve, as the corporate is already on the highest score on the Sri Lankan Nationwide Ranking scale.
Liquidity and Debt Construction
Hayleys had LKR51 billion of unrestricted money as of end-December 2024, towards LKR133 billion of debt maturing inside the subsequent 12 months. A lot of the near-term maturities, round LKR103 billion, include short-term working-capital traces, which we count on home banks to roll over, as they’re backed by round LKR148 billion in web working-capital property, whereas the money conversion cycle is wholesome and may average to round 115 days.
Hayleys had unused, however uncommitted, credit score traces of round LKR56 billion at FYE24, which additionally assist liquidity within the regular course of enterprise. We imagine Hayleys will retain robust entry to banks, given its diversified sources of money stream and enormous scale in contrast with most different rated corporates with predominantly Sri Lankan publicity.
Issuer Profile
Hayleys is a big listed home conglomerate with a number one and/or outstanding market positions in transportation, shopper and retail, textiles, rubber gloves and plantations.
Abstract of Monetary Changes
– We use EBITDAR-based leverage and protection ratios to evaluate Hayleys’ monetary profile as a result of presence of huge lease obligations, primarily by way of the retail showroom community of its home shopper and retail subsidiary, Singer (Sri Lanka) PLC (AA-(lka)/Secure).
– In assessing Hayleys’ monetary profile, we take away debt related to its step-down regulated finance subsidiary Singer Finance (Lanka) PLC (BBB+(lka)/Secure) from its interim subsidiary Singer (Sri Lanka)’s steadiness sheet, and due to this fact from Hayleys. It’s because company money stream is just not used to service finance firm debt. Nevertheless, to think about potential assist from Singer (Sri Lanka) to Singer Finance, we add again debt of LKR29.6 billion onto Singer (Sri Lanka) and Hayleys’ steadiness sheet, which is deemed to fund a hypothetical fairness injection to assist a capital construction commensurate with the finance subsidiary’s threat profile. This adjustment provides about 0.3x to Hayleys’ EBITDAR web leverage.
Date of Related Committee
21 January 2025
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of knowledge used within the evaluation are described within the Relevant Standards.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Click on right here to entry Fitch’s newest quarterly International Corporates Macro and Sector Forecasts knowledge file which aggregates key knowledge factors utilized in our credit score evaluation. Fitch’s macroeconomic forecasts, commodity worth assumptions, default charge forecasts, sector key efficiency indicators and sector-level forecasts are among the many knowledge objects included.
(Colombo/Mar22/2025)
