Spreading Risks

Consumer durable giant Singer Sri Lanka said Wednesday it plans to raise long-term funds to retire high cost short-term debt.
The firm said its Rs. 300 mn three-year debenture structured by First Capital Ltd will be unlisted and placed primarily among institutional investors.rn

rnThe debt paper carries a fixed rate of 13.5 percent and a floating rate of 1.5 percent above the one-year treasury bill.rn

rnThe consumer durable giant depends a lot on banking sources for funding. Sector analysts estimate the firm to have around Rs. 2 bn exposure at the short-term end, and this issue is expected to help ease the maturity mismatch.rn

rnThe issue carries a SL A national long-term credit rating for unsecured debt from Fitch Ratings Lanka Ltd.rn

rnSL A rating denotes a low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong.rn

rnA leading retailer of consumer durables, Singer claims the market leader position in its main product lines (i.e. sewing machines, refrigerators and televisions), which account for about two thirds of revenue. rn

rnFitch is of the view that Singer will continue to hold the market leadership due to its superior distribution network, successful multi-branding strategy coupled with strong lquote Singer franchise, and in-house hire purchase (HP) schemes. rn

rnIn May 2001, Fitch Ratings also gave Singers Rs. 500 mn short-term paper a SL F-1 rating.rn

rnSL F-1 — a notch below SL F+ — denotes high credit quality in the short term. SL F1 indicates companies in the range of an A- to an A+. rn

rnThe rating will help reduce borrowing costs, mainly by removing the necessity to obtain a bank guarantee.rn

rnSinger has well-established systems evolved over decades to offer in-house Hire Purchase facilities and maintains a healthy portfolio with low arrearage levels of around 2 percent.rn

rnThe consumer durables industry is susceptible to economic cycles, rural electrification levels and import duty structures. Intensified competition due to cheap quality products from China and India along with a trend towards globalisation would reduce product margins.rn