Sri Lanka Singer billion rupees debt sale rated ‘A(lka)’

Aug 29, 2012 (LBO) – Fitch has rated a proposed billion rupee redeemable debt sale by Singer Sri Lanka, a consumer durables retailer ‘A(lka)’ with a stable outlook. “The rating reflects Singer’s market position as one of Sri Lanka’s largest consumer durables retailers, as well as its established franchise and extensive distribution network,” Fitch Ratings Lanka said.

“The rating also reflects the company’s multi-brand product portfolio that is diversified across price points and its well managed financing operations.”

The funds will be used to repay maturing debentures and lengthen the maturing profile of its debt.

The full statement is reproduced below:

Fitch Rates Singer Sri Lanka’s Proposed Senior Debt at ‘A(lka)’

Fitch Ratings-Colombo/Mumbai/Singapore-29 August 2012: Fitch Ratings Lanka has assigned Singer (Sri Lanka) PLC’s (Singer) proposed three-year senior unsecured redeemable debentures of up to LKR1bn a National Long-Term rating of ‘A(lka)’. The Outlook is Stable.

The rating reflects Singer’s market position as one of Sri Lanka’s largest consumer durables retailers, as well as its established franchise and extensive distribution network.

The rating also reflects the company’s multi-brand product portfolio that is diversified across price points and its well managed financing operations. Also, Singer has good access to credit from local banks, and regularly accesses capital markets to raise debt which has broadened its funding avenues.

Singer expects to utilise part of the issue proceeds to repay maturing debentures, while the remainder will help restructure its balance sheet by lengthening the maturity profile of its debt. The debenture will have a bullet repayment of principal at maturity, which is in three years post-issuance, and quarterly coupon payments at either a fixed or floating rate.

Singer’s financial leverage (adjusted debt net of cash/operating EBITDAR), excluding debt of its subsidiary Singer Finance (Lanka) PLC (SFL, ‘BBB+(lka)’/Stable), was low at around 2.4x, and well below the 4.5x threshold for its current rating. The company’s liquidity was sufficient at end-June 2012, with cash reserves of LKR362m and unutilised but approved bank lines of LKR2.1bn covering term-debt due within a year of LKR610m.

A further LKR5bn of Singer’s company-level debt consists of short-term facilities, and is used to fund its working capital requirements. Fitch does not expect its working capital dynamics to deteriorate materially in the near term given Singer’s strong market position and strong bargaining power with its suppliers and distributors.

WHAT COULD TRIGGER A RATING ACTION?

Negative: Future developments that may, individually or collectively, lead to negative rating action include:

– a weakening of Singer’s liquidity position or risk profile

– a sustained increase in financial leverage above 4.5x

– any weakening of SFL’s risk profile, given the strong linkages between the two entities

Positive: Fitch does not expect positive rating action in the medium term, given the degree of susceptibility of consumer durable retailers’ profit margins to macroeconomic cycles.