Ownership change won’t affect Singer Sri Lanka rating: Fitch

Fitch Ratings yesterday said the acquisition of Singer Sri Lanka by Hayleys PLC would have neutral impact on the former’s rating as Hayleys’ ability to provide extraordinary support to Singer, if required, remains limited.

“This is because Hayleys’ balance sheet will be stretched significantly following the completion of the Singer acquisition despite Hayleys’ stronger business risk profile as the purchase is likely to be largely funded by debt and existing cash,” Fitch said. 

The rating agency added that Hayleys’ support for Singer would also be constrained by the latter’s own balance sheet and its significant debt.

On September 15, 2017, Hayleys purchased a 61.73 percent stake in Singer from its main shareholder Retail Holdings (Sri Lanka) BV for Rs.10.9 billion.

Retail Holdings will retain a stake of 9.47 percent for the time being while Hayleys will make a mandatory offer as required by local regulations to purchase the remaining 28.8 percent of Singer.
“We estimate that following Hayleys’ acquisition of the 61.73 percent of Singer, Hayleys’ consolidated lease-adjusted debt net of cash/operating EBITDAR of 3.9x as at end-March 2017 (FY17) will increase to 5.8x, all else remaining equal,” Fitch noted. 

“Hayleys’ leverage could increase further depending on the use of more debt to fund the remaining stake in Singer following the completion of the mandatory offer,” Fitch added. 

The rating agency estimates that Hayleys’ financial flexibility will be stretched even further at stand-alone company level through which a bulk of the investment in Singer will be made.

With the acquisition, Singer, the biggest consumer-durable retailer in the country, will become Hayleys’ largest subsidiary contributing an estimated 23 percent of the Hayleys group’s post-acquisition pro-forma consolidated EBITDA. 

Hayleys’ other significant operating segments include transportation and logistics, purification and agriculture, whose contribution to Hayleys’ post-acquisition pro-forma consolidated EBITDA will drop to approximately 13 percent, 11 percent and 10 percent, respectively, according to Fitch’s estimates, with all else being equal.

Fitch also does not currently expect Singer to benefit from any significant operational synergies from being part of the larger Hayleys group. 

“We do not believe there will be additional pressure for higher dividend upstreaming from Singer to its new parent as Singer’s average dividend payout has been above 60 percent in the past, which is materially higher than what we have seen with most of Hayleys’ subsidiaries,” Fitch said.