Fitch Ratings says Hayleys PLC’s acquisition of a controlling stake in Singer (Sri Lanka) PLC (Singer, A-(lka)/Stable) is neutral for Singer’s rating.
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.
In Fitch’s view, this is likely to limit Hayleys’ ability to provide extraordinary support to Singer if required, especially given the size of Singer’s own balance sheet and its significant debt.
On September 15, Hayleys purchased a 61.73% 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% for the time being while Hayleys will make a mandatory offer as required by local regulations to purchase the remaining 28.8% of Singer.
Fitch estimates that following Hayleys’ acquisition of the 61.73% 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.
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 estimates that Hayleys’ financial flexibility will be stretched even further at the 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% 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%, 11% and 10%, respectively, according to Fitch’s estimates, with all else being equal.
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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.
In Fitch’s view, this is likely to limit Hayleys’ ability to provide extraordinary support to Singer if required, especially given the size of Singer’s own balance sheet and its significant debt.
On September 15, Hayleys purchased a 61.73% 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% for the time being while Hayleys will make a mandatory offer as required by local regulations to purchase the remaining 28.8% of Singer.
Fitch estimates that following Hayleys’ acquisition of the 61.73% 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.
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 estimates that Hayleys’ financial flexibility will be stretched even further at the 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% 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%, 11% and 10%, respectively, according to Fitch’s estimates, with all else being equal.
www.dailynews.lk
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