Fitch assigns Abans’ proposed debentures AA-(lka)’ National Long-Term Rating

Fitch Ratings has assigned a ‘AA-(lka)’ National Long-Term Rating to Sri Lanka-based consumer electronics retailer Abans PLC’s (AA-(lka)/Stable) proposed senior unsecured redeemable debentures of Rs.1.0 billion, with the option to increase up to Rs.2.0 billion.
The proposed debentures are rated in line with Abans’ existing unsecured notes, as they rank equally. The proceeds from the debentures will be used to refinance the company’s existing debt.
Abans’ rating reflects its strong domestic market share in consumer electronics, supported by an extensive distribution network and established brands, along with its adequate financial profile. 
Fitch said it expects a gradual recovery in demand for consumer durables, amid a slow rebound in Sri Lanka’s economic activity, which should mitigate profitability pressure from increased competition as imports resume.
“We expect the lifting of the import ban in October 2023 to ease supply shortages and lower Abans’ inventory days. We do not expect a reimposition of the ban in the medium term, given Sri Lanka’s improved external finances and the requirement for free trade under the International Monetary Fund programme,” Fitch said.

Abans held a large amount of inventory, which peaked at over 200 days in the financial year ended in March 2023 (FY23) at the height of the import ban. The rating agency said it expects the sales volume to increase by single digits in FY24, as consumer spending, especially on non-essentials such as electronics, is likely to stay weak in the next 12-18 months. Nevertheless, this would be a rebound from the recent sharp volume contraction. 
Consumer incomes will take time to adjust to the higher cost of living, following the country’s high inflation, with the early-2023 income tax hikes acting as a further drag. Fitch forecasts gross domestic product to expand by 3.3 percent in 2024, following a contraction of 2.3 percent in 2023 and 7.8 percent in 2022.
Further, the EBITDAR margin is expected to moderate to 11.8 percent in FY24, from 17.6 percent in FY23, before stabilising at around 10.0 percent from FY25.