Hayleys to dispose Singer stake; credit outlook revised to Negative

■ „Hayleys will retain controlling stake post disposal of Singer shares ■ „Hayleys’ total debt stock at Rs.121.5bn by end-june against Rs.63.5bn equity

Diversified conglomerate Hayleys PLC is seeking to partly divest its Singer Sri Lanka PLC stake in less than three years into its blockbuster acquisition of the consumer durables behemoth as the group accumulated debt throughout its acquisition spree, which has now begun to weigh on its financial performance and credit rating.

Hayleys, along with its group entities in concert, acquired 61.73 percent stake in Singer in September 2017 for Rs.11 billion. A major part of the deal or 45.34 percent stake was funded through debt— which is known as a ‘leveraged buy-out’.

As of June 30, 2020 Hayleys and its constituent parties held 90.43 percent stake in Singer while Hayleys’ controlling shareholder Dhammika Perera held another 1.85 percent.

Hayleys is expected to retain the controlling stake in Singer should any disposal of shares occur, ICRA Lanka said noting the delay in such a move due to not so conducive market conditions.

“Although, it was expected that the company would partly deleverage by raising funds from the proposed asset monetization and sale of partial stake in Singer (keeping controlling stake with

Hayleys), the same has been significantly delayed due to the subdued market conditions prevailing over the past two years,” the rating agency said.

ICRA Lanka, a part of Moody’s Investors Service, last week affirmed Hayleys’ entity rating at A+ but revised down the outlook to ‘Negative’ from ‘Stable’ citing continued debt increase, particularly at the standalone level, leading to weakening of the capital structure during FY2020 and 1QFY21.

ICRA Lanka measured how the company’s gearing had evolved from 1.7 times on FY2018 to 2.0 times, 2.95 times and 3.0 times as of FY2019, FY2020 and 1QFY2021 respectively. However, the rating agency said the company’s liquidity risks are mitigated to a larger extent, “due to the company’s track record with financial institutions and easy access to capital markets, and access to undrawn sanctioned lines,” which supports the overall liquidity position.

For the three months ended June 30, 2020, Hayleys PLC reported negative earnings of Rs.3.80 a share or a net loss of Rs.285.2 million compared to negative earnings of Rs.7.31 a share or a net loss of Rs.548.5 million in the comparable period last year, as losses in the leisure business and the finance cost at the group level weighed on the performance.

The company had total debt stock of Rs.121.5 billion by end-june, nearly twice the equity amount, which was Rs.63.5 billion.