Planned asset sale at Singer could deliver about Rs.10bn in proceeds
Hayleys PLC has been planning to dispose part of the assets of its subsidiary Singer (Sri Lanka) PLC, to reduce the latter's leverage but the not so favourable macroeconomic conditions have continued to impede such plans for more than a year now.
According to ICRA Lanka Limited, Hayleys is looking to raise about Rs.10 billion from the sale of underutilised real estate and a minority stake in Singer.
The plans for monetising part of Singer's assets first came to light last year but the prevailing economic conditions at the time prevented the company from executing such plans. The ratings agency said Hayleys remains “committed to the asset disposal plan”.
In a rating report on Hayleys PLC issued last week, ICRA
Lanka measured Singer's debt at Rs.26.2 billion as of March 2021, slightly down from Rs.27.3 billion a year ago but this debt remains significantly higher than the Rs.10.4 billion in total equity of the company by June 2021, placing its debt at close to thrice the amount of its shareholder funds.
In the three months to June 2021, the company's first fiscal quarter, Singer (Sri Lanka) reported earnings of 39 cents a share or Rs.439.3 million, up 20 percent from the same period last year.
Although this marked a slowdown from the previous quarter ended in March 2021, the company, along with the rest of the consumer durables sector, did particularly well financially since the reopening of the country last year from the first wave of the pandemic.
.For instance, there was a spurt in earnings in the financial year ended in March 2021, as the company reported earnings of Rs.2.45 billion, compared to Rs.280.7 million in the previous financial year.
The sales rose by a robust 23 percent to Rs.67.4 billion, defying the challenging economic conditions.
However, commenting on Hayleys PLC, ICRA Lanka said the operating income, which generated mainly from the dividends, is not sufficient to cover the debt servicing obligations, which in turn expose the company to refinancing risk but added that strong relationships with banks would provide some comfort in the process.
In the financial year ended in March 2021 (FY21), Hayleys PLC improved its debt coverage indicators, due to higher dividends received from its group entities, which delivered robust post-pandemic performance except at leisure.
Hayleys PLC is one of the most diversified companies in Sri Lanka, which has interests in 12 sectors and generates close to 90 percent of its operating income from dividends from its group entities.
As a result of the stellar performance in majority group entities, which have a sizeable export component, Hayleys’ interest cover had improved to 1.43 times in FY21, from 0.43 times a year ago, while the overall debt servicing coverage improved to 0.57 times, from 0.14 times.
Further, the leverage measured by debt to EBITDA improved from 20.07 times to 7.07 times in FY21.
“ICRA Lanka also notes that the group entities and the holding company are significantly benefiting from the sharp decline of systemic interest rates,” the rating agency added while reaffirming Hayleys PLC’S rating at A+ and raising the outlook to Stable, from Negative, on improved financial performance and debt matrices.