Thursday, November 25, 2010

Fitch affirms Hayleys at 'AA-(lka)'r Removes RWN; assigns negative outlook

Fitch Ratings has yesterday affirmed Sri Lanka-based Hayleys PLC's (Hayleys) National Long-term rating at 'AA-(lka)'. Following further evaluation the agency has simultaneously removed the Rating Watch Negative (RWN) on Hayleys and assigned a Negative Outlook.

The assignment of the Negative Outlook mainly reflects Fitch's concerns with regards to the continuation of Hayleys increased leverage levels at its holding company, post the acquisition of the Alumex group.

Based on unaudited financials for the six months to end-September 2010, this transaction would increase Hayleys' leverage (adjusted net debt/operating EBITDAR) as a holding company to above 5.5x. This leverage level incorporates cash inflows of about Rs. 900 m due to a part sale of Alumex to a third party.

However, the strong financial profiles, control over operational and financial policies as well as the ability to extract higher dividends than that was paid historically from some of Hayley's key divisions act as mitigating factors to the holding company's increased leverage levels at this point in time.

Fitch also takes comfort from the management's expected strategies of further cash inflows in the near-term to the holding company through asset sales and other measures.

A downgrade could be warranted, if cash inflows either through asset sales or higher than normal dividends do not materialise resulting in Hayleys' leverage as a holding company stagnating above 3.5x within the next six months.

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