Fitch places Hayleys on RWN

Fitch Ratings Lanka has placed Hayleys PLC's (Hayleys) National Long-term rating of 'AA-(lka)' on Rating Watch Negative(RWN).

This follows Hayleys announcement on November 4 of its acquisition of Alumex group for LKR 2.2bn, of which LKR2bn was funded using debt facilities at its holding company - Hayleys PLC.

The assignment of RWN reflects Fitch's view that Hayleys' rating could be downgraded or affirmed over the near-term, subject to the review of further material information. Also Fitch's concern that based on the increase in debt, Hayleys' leverage (total adjusted net debt/EBITDAR) rising to a level no longer commensurate with the current ratings. As of September 30 Hayleys' total debt at holding company was LKR 2.1bn and its leverage was 3.5x.

The Alumex acquisition's debt funding of LKR 2bn will deteriorate this leverage level significantly.

The rating could be downgraded immediately, if it emerges that Hayleys is unable to maintain leverage closer to pre-acquisition levels as a result of certain planned measures that the management expect to implement over the near-term.

Fitch had in its earlier announcement on May 30 highlighted that an increase in indebtedness at the Hayleys' holding company level - due to any future investments with limited control over dividend policy or long payback periods - could result in negative pressure on Hayleys' ratings.

Proposed plans at Hayleys' newly announced wind power project as well as expected refurbishment plans at Ceylon Continental Hotel will increase indebtedness at group level and are concerns for its rating.

These also include the fact that based on H111 figures, Hayleys' hand protection, fibre and textile segments are currently stressed.

Therefore, the group's better performing segments such as transportation, agri-inputs and plantations will be required to increase their dividend contributions to the holding company to maintain appropriate leverage and coverage.