International ratings agency Fitch this week replaced a "Rating Watch Negative (RWN)" that was assigned last week to Sri Lankan diversified conglomerate Hayleys, with a "Negative Outlook" to accompany the company's unchanged "AA-(lka)" national long-term rating.
These downgrades from Hayley's fairly recent "Stable Outlook" have been stated to be reflections of Fitch's concern spurred by "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 00 million due to a part sale of Alumex to a third party."
Fitch however noted that, given its strong financial profiles as well as control over operational and financial policies along with the potential for higher dividends from the company's key divisions, there were "mitigating factors" for increased leverage at this time. It also alluded to being comforted by "the management's expected strategies of further cash inflows in the near-term to the holding company through asset sales and other measures."
However, Fitch does warn that further downgrades 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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