RAM reaffirms Hayleys ratings amidst high debt levels
View(s):RAM Ratings Lanka has reaffirmed Hayleys PLC’s (Hayleys) respective long- and short-term corporate credit ratings at AA- and P1.
RAM pointed out, in a statement, that the ratings are tempered by the group’s moderately high debt levels as well as its exposure to fluctuations in commodity prices and foreign exchange risks.
“On a separate note, the group’s debt protection metrics continued to be adequate and above our expectations,” it said.
“Concurrently, we have reaffirmed a long-term issue rating of AA- to the company’s issued Rs. 2 billion Senior, Unsecured, and Redeemable Debentures (2013/2016). Both the long-term ratings carry a stable outlook. The ratings are upheld by the group’s diversified business interests, strong market positions in several key businesses coupled with the group’s adequate debt protection metrics,” RAM said.
It said the ratings continued to be supported by the group’s diversified business interests, which has enabled it to withstand adversities affecting a particular industry sector, as weaker showing in one business can be off-set by the strong performance in another. Meanwhile, the group continues to enjoy strong positions in several of its key businesses. It is the world’s largest producer of coconut-shell-based activated carbon with an estimated market share of around 15 per cent. Additionally, the froup accounts for around 5 per cent of the global market for non-medical gloves.
In plantations, the group is a sizable player in Sri Lanka. In addition, Hayleys is also a strong player in domestic logistic industry and aluminum extrusion manufacturing.
RAM said the improvement in debt coverage was supported by better performance in its key segments of purification, hand protection and transportation. We anticipate that the group’s “FFO debt” coverage levels will remain around 0.34 times in fiscal 2014.
However, it said the ratings are weighed down by the group’s relatively high debts, compared to the rated portfolio; borrowings had increased in recent years as the group pursued aggressive debt funded expansions. In fiscal 2013, the group’s debt level was in line with RAM expectations as Hayleys’ total debts increased 8.48 per cent y-o-y to LKR Rs. 23.59 billion, primarily to fund capacity expansion in its key business lines, the refurbishment of the group’s five star city hotel and higher working capital requirements; the group’s gearing ratio.
The statement also referred to Dipped Products PLC’s domestic factory operations being affected due to alleged water contamination concerns. “Though, we note, independent third parties (including state entities) have evidenced that the factory operation does not harm environment. Further, the group has planned to set up a new factory at Biyagama Board of investment.”