Singer gets top rating for its upcoming Rs. 600 mn debt issue to fund higher purchase business

Fitch Ratings Lanka Ltd (FRL) assigns A(sri) national long-term credit rating for Singer (Sri Lanka) Ltd.’s upcoming Rs. 600mn unsecured redeemable debenture issue. Fitch Ratings Lanka Ltd (FRL) assigns A(sri) national long-term credit rating for Singer (Sri Lanka) Ltd.’s upcoming Rs. 600mn unsecured redeemable debenture issue. FRL also affirms A(sri) national long term credit rating assigned for the Rs. 250mn, 2004/2008 unsecured redeemable debenture and Rs. 300mn, 2002/2005 unsecured redeemable debenture.

The Rating Outlook is stable. The proposed debenture is expected to rollover the Rs. 400 mn, 2001/2004 unsecured redeemable debenture maturing in November this year, with the remainder to be utilised to fund the growing hire purchase portfolio, Fitch said Tuesday.

An A (sri) ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings.

The rating takes into account, Singer’s market position as the leading consumer durables retailer in the country, its extensive distribution network, strong franchise and competent management.

The growth momentum achieved by Singer in financial year 2003 continued during the first half of this financial year as well. Improved gross profit margins and comparatively lower operating expenses contributed towards improved EBIDTA margins.

Revenue was up 33 percent during the 1H FY04, in comparison to the corresponding period in FY03. Total debt increased by Rs. 400 mn during this period, but largely on account of its growing hire purchase receivables.

Higher purchase sales and finance income on hire purchase sales accounted for about 48 percent and 11 percent of revenue respectively, while hire purchase receivables increased by 24 percent to Rs. 2.4 bn as at June 2004.

Nonetheless wider EBITDA margins have enabled Singer to strengthen its creditor protection ratios slightly. Going forward, Fitch expects hire purchase sales to increase its relative share of total sales, which will see a gradual increase in outstanding debt.

However Singer possess a long track record of profitable hire purchase operations. Further Singer adopts prudent revenue recognition and stringent write off policies on hire purchase contracts. Hire purchase arrearage (default HP/Total HP receivables) remains creditably low at below 2 percent.

“Our previous concerns regarding the financial profile of Singer’s ultimate parent company (Singer N.V), and its potential impact on Singer Sri Lanka have also receded.”

“Consequently we expect higher retention of earnings as opposed to substantially higher pay out ratios seen prior to FY03, which will ease pressure on leverage despite rising debt.”

Developments in the political and economical landscape in the short-medium term remain uncertain. Negative impact on macro economic factors relating to the consumer durables industry (i.e. inflation rates, interest rates, foreign exchange rates, consumer spending levels) may exert pressure on sales growth and profit margins. Singer (Sri Lanka) Ltd., is a consumer durables retailer accounting to over 120 years of operations in Sri Lanka.

Singer Sri Lanka is an 81 percent held subsidiary of Singer Asia (Singer Asia is 56.8 percent held by Singer N.V. Netherlands). Singer Sri Lanka adopts a multi-branded marketing strategy, retailing white goods, consumer electronics, furniture and other products.