Sri Lanka Hayleys MGT Knitting Mills rating downgraded

Dec 15, 2010 (LBO) - Fitch Ratings Lanka has downgraded Hayleys MGT Knitting Mills' (HMGT) national long-term rating to 'BBB(lka)' from 'BBB+(lka)' with a negative outlook, a statement said. HMGT's liquidity was adequate based on unutilised facilities of 8.3 million dollars as at end-September 2010, Fitch said. "The downgrade primarily reflects HMGT's lower operating margins," it said.

"The company's inability to increase sales prices in the face of significantly increased cotton prices is a key concern for the rating."

Fitch also noted that HMGT's operations management may require strengthening due to lapses in the debtor and inventory management areas as recently indicated in a company announcement.

The non-value adding expenses - provisions for bad debts and for slow moving stock - escalated to sizable proportions in the first half of the 2011 financial year (end-September 2010) and amounted to over 1.25 million US dollars, Fitch said.

This indicated "a significant leakage of the company's profits," Fitch said.

The rating agency last week placed the fabric maker, a unit of the Hayleys group, on 'Rating Watch Negative' after the firm warned of losses when an inqui