Business Times

RAM assigns long-term rating of A- to Lankem Rs 500 mln debentures

RAM Ratings Lanka has reaffirmed the respective long- and short-term corporate credit ratings of Lankem Ceylon PLC (Lankem) at A- and P2. “Concurrently, we have assigned a long–term rating of A- to Lankem’s proposed Rs 500 million unsubordinated unsecured redeemable debentures (2010/2015). Both long-term ratings have a stable outlook,” the agency said.

The ratings are supported by stable demand for Lankem’s key product - agrochemicals - and its dominant market positions in most of its business lines. On the other hand, the ratings are moderated by the Group’s heavy debt burden. RAM said the Group’s primary revenue drivers are its plantation and chemicals businesses with Lankem getting assured revenue from agrochemicals.

“The Group enjoys dominant positions in most of its business segments; it is the market leader in agrochemicals and thinner products and one of the leading players in the paints industry. The Company is also one of the largest tea and rubber producers in the country,” the RAM statement said.

Lankem’s revenue almost doubled year-on-year to Rs 4.80 billion in the first quarter of FYE 31 March 2011 driven by more robust tea and rubber prices. Elsewhere, revenue from Lankem’s consumer segment had also increased, underscored by the generally more favourable macroeconomic environment.

“Lankem’s funds from operations debt coverage ratio to 0.46 times as at end-June 2010 (end-March 2010: 0.28 times). Moving forward, the proceeds from the Group’s proposed issuance of Rs 500 million of debentures will be mainly utilised to refinance its existing borrowings. As such, Lankem’s financial profile is envisaged to remain largely unchanged,” RAM said.

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