Sri Lanka fabric maker on rating watch negative after fraud allegation

Sri Dharanee Performance Arts Theatre

Dec 10, 2010 (LBO) – Fitch Ratings said it placed Hayleys MGT Knitting Mills on ‘Rating Watch Negative’ after the Sri Lankan fabric manufacturer warned of losses when an inquiry revealed discrepancies in inventory and accounts receivables. Fitch has given Hayleys MGT Knitting Mills, a unit of the Hayleys conglomerate, a national long-term rating of ‘BBB+(lka)’.

The fabric maker told the stock exchange that a physical stock verification and an inquiry into debtors was completed revealing what it called “negative discrepancy between the actual inventory and receivables.”

The company warned that this might require more provisioning and the matter “warrants further investigations.”

The company’s board has decided to do a forensic audit and verification by external auditors.

Additional provisioning will be made in the third quarter accounts to be released before February 2011, Hayleys MGT Knitting Mills said.

It warned that the extra provisioning may result in a loss for the third quarter and the 2010-11 financial year.

Fitch said it will resolve the rating watch following the conclusion of the ongoing company review.

“The rating action reflects Fitch’s view that HMGT’s recent industry trends, financial