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Singer’s private party gets top rating

Singer (Sri Lanka) Ltd walked off with a A+(sri) rating from Fitch Ratings Lanka Limited for its upcoming debenture issue, the rating agency said Tuesday. Singer (Sri Lanka) Ltd walked off with a A+(sri) rating from Fitch Ratings Lanka Limited for its upcoming debenture issue, the rating agency said Tuesday. The rating outlook is stable.

The consumer goods giant said Monday that it hopes to raise Rs. 400 million in debt through a private placement.

The issue carries mix tenures of Rs. 150 million (for three-years) and Rs. 250 million (for four-years).

Fitch also re-affirmed A+(sri) rating on Singer's outstanding unsecured debenture issues:
• Rs. 500 million 2005-9
• Rs. 300 million 2005-9
• Rs. 204 million 2004-8
• Rs. 250 million 2004-8
• Rs. 300 million 2002-5

Todate, Singer has issued up to Rs. 950 million in debentures, with funds ploughed back to feed its growing consumer financing operations.

Part of the proceeds from the upcoming private placement will be utilised to redeem a debenture maturing in October 2005.

The balance will support the financing operations of Singer. The issue will also improve the debt maturity profile of the company, Fitch said.

Singer reported robust growth during the first half of 2005, with turnover growing 30 percent to Rs. 5.3 billion, over the corresponding period 2004.

Earnings before interest tax dividends and amortization (EBITDA) margins however, fell to 12 percent from 13 percent in financial year 2004, largely due to tsunami related debts.

Meanwhile, Singer has been successful in passing down increases in duty/value added tax and interest rates to its customers without eroding margins.

"However, Fitch recognises that competition and inflationary pressures on consumer spending are intensifying and going forwards retailers may find it difficult to readily pass-through further increases in costs."

Nevertheless, Fitch does not expect severe price competition or a marked adverse change in the profitability of retailers.

Singer's leverage measured by Debt/ EBITDA increased to three times as at end of the first six months of 2005, from 2.7 times owing to the increased debt to fund the consumer financing operations, increased working capital stemming from sales growth and new store openings.

The agency expects Singer's leverage to increase further with the growing consumer financing operations and retail network expansion making Singer a more levered entity overall.

However, the forecast metrics for the company over the short- to medium-term are comfortable for the current rating category.

Fitch said it appreciates that a differing capital structure applies to the consumer financing operations of the company and takes comfort in the quality of the receivables portfolio.

Although debt maturity is skewed towards the short-term, liquidity is fair with Rs. 387 million of cash and liquid marketable assets at end of the six months to 2005, backed by Rs. 350 million of committed-undrawn credit facilities.

In addition, Singer has good access to capital markets.

Singer, Sri Lanka's largest consumer goods retailer, has a network of 650 points of presence.

Around 55 percent of the firm's sales are on consumer financing schemes with interest earned on such sales accounting for about 12 percent of the company's topline.

The quality of receivables is high with defaults maintained below two percent consistently.

Fitch Ratings Lanka Ltd is a joint venture between Fitch Ratings, USA, International Finance Corporation Washington, Sri Lanka’s Central Bank and several other leading local financial institutions.

-LBO Newsdesk: LBOEmail@vanguardlk.com

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