Hela Apparel to put off investment plans in Sri Lanka amid economic crisis

• Seeks approval to divert IPO funds to restructure short-term debt to contain forex losses and finance costs

Amid the on-going economic crisis, one of fastest growing apparel manufacturers, Hela Apparel Holdings Limited, has decided to defer its key investment plans in Sri Lanka and to settle its short-term debt ahead of maturity in order to contain anticipated foreign exchange losses and finance costs.

Accordingly, Hela in stock filing to the Colombo Stock Exchange (CSE) announced that the company is moving forward to divert over Rs.2 billion un-utilised funds raised through its recently concluded IPO towards its subsidiaries for an early settlement of the group’s both US$ and rupee denominated short-term debt. 
With this defensive move, Rs.3.91 billion of Hela Apparel’s Rs.4 billion IPO funds would be utilised for the expanded debt restructuring initiative. 

With the deepening economic crisis, the rupee has depreciated sharply since early March while interest rates have shot up to record levels amid the monetary policy tightening measures in response to address rising inflation. 
“In order to avoid the impact of further depreciation in the currency on the remaining funds allocated to these objectives relative to the company’s US$-denominated investment requirements and
borrowings, it therefore wishes to immediately divert them to equity investments into its subsidiaries for the purpose of settling additional debt under Objective 1.2.3.  

This includes Sri Lankan rupee-denominated debt and US$-denominated debt, which will be settled by using the funds to finance local operating expenses diverting a portion of US dollar export proceeds to debt settlement,” Hela Apparel said. Consequently, the company said it has differed investments in three initiatives stipulated in its IPO prospectus.Hela Apparel originally allocated Rs.1 billion to invest in a fabric mill project, Rs.596,2 million in a new enterprise planning (ERP) system and Rs.410 million for productivity-enhancing capital expenditure in subsidiaries focusing on automation of certain processes.  

However, the company said it has run to delays in finalising the fabric mill project, which was to be setup as a joint investment and completed this year, due to the prevailing economic environment in the country. The project was expected to provide raw material supply security for Hela’s Sri Lankan operations, which will in turn enable more product innovations and higher levels of customer satisfaction.

Although, the implementation of a new ERP system was already underway with Rs.95.29 million of allocated funds utilised, Hela pointed out that it’s subjected to forex losses since a portion of the required payments are linked to the US$.The company expressed intentions to complete the productivity-enhancing capital expenditures following the commencement of the second quarter of FY22/23, provided economic conditions are favourable at that time.

However, Hela stressed that it remains committed to fulfilling objectives set out in its prospectus despite temporarily shifting its priority on strengthening its balance sheet. The company is expected to seek the Related Party Transactions Review Committee approvals for the disbursement of funds.  Further, shareholder ratification for the deviations pertaining to the IPO fund utilisation would also be obtained at the company’s next immediate General Meeting.