Fitch downgrades Singer (Sri Lanka) to ‘A-’; Places on Negative Watch
Fitch Ratings last week downgraded Singer (Sri Lanka) PLC’s (Singer) National Long-term rating, and the rating on its senior unsecured notes to ‘A-(lka)’ (A minus (lka)) from ‘A+(lka)’. The ratings have been placed on Rating Watch Negative (RWN).
The rating actions reflect Singer’s weakened credit metrics coupled with high refinancing needs over the short term.
Slowing revenue growth together with increased operating and financing costs have resulted in the deterioration of both leverage and coverage measures for Singer’s retailing operations; revenues from retailing operations have been affected by high inflationary pressure on consumer spending during most of 2008.
As at December 2008 Singer had about LKR1.3bn of long-term debt, LKR895m of debentures and about LKR442m of long-term loans (due for refinancing within one year), while a further LKR895m of debentures is due to mature in 2010, with the remaining LKR460m due over a further three-year period.
Access to debt capital markets may be challenging given the present market conditions, as well as
Singer’s weakened financial profile. Singer has undrawn credit facilities amounting to LKR1.5bn which provides some comfort with regards to its refinancing needs in 2009.
Singer’s interest coverage as measured by EBITDA to net interest expense has deteriorated to 1.3x for
FY08. While Fitch notes that Singer has taken measures to reduce working capital and operating costs, the effects of these are yet to be seen. A continued deterioration of its operating performance can result in further weakening of Singer’s interest coverage. The RWN reflects the possibility of further negative rating actions should its financial profile continue to deteriorate.
The rating takes into note the company’s strong market position in consumer durables, well-managed consumer financing operations, established franchise, multi-brand portfolio, and large distribution network. It should be noted that Singer’s leverage ratios are high compared to similarly rated corporates.
However this is due to the nature of its significant consumer financing operations, which fundamentally carries high amounts of debt.
Singer confident
In response to Fitch’s rating change, Singer (Sri Lanka) PLC said that the Company was very confident about meeting its refinancing needs on the short term and that it has already taken necessary measures to strengthen its credit metrics in the coming six months by slashing inventories, reducing unproductive headcount and improving of gross margins and drastically reducing fixed (period) expenses.
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