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Aitken Spence floats debenture to pay off loans

August 28, 2006 (LBO) - Sri Lanka’s Aitken Spence & Co Ltd secured a AA(lka) rating for its upcoming 500 million debenture, but Fitch Rating Lanka expressed concerns on the group's exposure to the monopoly state power distributor and a worsening ethnic conflict. The bluechip conglomerate is tapping the corporate debt market with a 500 million rupee issue to partly pay off short-term debt.

Details of the issue are still being firmed up, but it is expected to carry tenures of between 4-5 years, priced at a floating rate of interest and privately placed among market players.

In the event of an oversubscription, Aitken Spence plans to size the issue up to 750 million rupees.

The island's second biggest diversified group, Aitken Spence has investments in over 40 units, with power, tourism and cargo handling bringing in most of its revenues followed by tea and rubber plantations, manufacturing and management services.

Aitken Spence bankrolled many of its recent investments through short-term facilities from banks.

Key investments included raising the company's stake in its largest power generation company to 74 percent from 50 percent and financing part of their resort hotels rebuilding costs.

The group recently secured a billion rupee long-term credit from a commercial bank, and Fitch Ratings says proceeds from the loan and the debenture will be ploughed back to refinance a billion rupee short-term debt and future investments.

The group's rating outlook is stable, the risk evaluator said Monday.

Power generation accounts for 60 percent of Aitken Spence's sales and around 80 percent of profits. State-run Ceylon Electricity Board (CEB) currently monopolises power distribution and Fitch says Aitken Spence remains vulnerable to CEBs weak financial status.

Although CEB takes around 45 days more than the allowed credit period to settle dues to the generation companies, Fitch notes that the overall collection period has been steady at around 75 days.

"A further escalation of the hostilities between the government and the Tamil Tiger rebels will exacerbate the already weakened operating and financial performance of Aitken Spence's tourism related operations in Sri Lanka," the agency adds.

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