Hemas to raise Rs. 1 b via debentures; Fitch assigns ‘A+ (EXP)’
Thursday, 3 April 2014 00:23
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Fitch Ratings has assigned Sri Lanka-based Hemas Holdings PLC’s (HHP) proposed issue of senior unsecured redeemable debentures of up to Rs. 1 billion an expected rating of ‘A+(lka)(EXP)’.
The final rating on the debentures is subject to the receipt of transaction documents conforming to information already received. The proceeds of the issuance are likely for refinancing existing debt, therefore lengthening HHP’s debt maturity profile.
HHP is a holding company (holdco) with key wholly-owned subsidiaries operating in fast-moving consumer goods, healthcare and transportation sectors. The company also has majority interests in subsidiaries across leisure and power.
Key rating drivers
Diversified Operations: Hemas’ rating reflects the essential nature of and resilient demand for end products and services of its key operating subsidiaries, supported by its low financial risk at the Holdco and Group levels. The rating also factors in the businesses’ strong brands, leading market share and moderate free cash flow generation
Dependence on Subsidiaries Dividends: As a holding company Hemas is dependent on dividends and fees from its operating subsidiaries in order to service debt at the Holdco level. Fitch considers the structural subordination of holdco creditors to be low, because Hemas’ key subsidiaries are wholly-owned with low leverage. However, should leverage at the holdco and the main, wholly owned operating subsidiaries in manufacturing, pharmaceutical, and transportation increase significantly, there will be negative pressure on the rating.
PPA Re-negotiation and Renewal: The power purchase agreement (PPA) of Hemas’ main dividend contributing plant Heladhanavi (HD) is up for renewal in Dec 2014. HD is a 100MW plant run as a joint venture between Hemas and state-owned Lakdhanavi. In the event HD’s PPA is not renewed the significant contribution to Holdco dividend is likely to reduce. However, Fitch expects this negative impact to be lessened by the fact that the holdco leverage adjusted for its wholly-owned subsidiaries is low.
Low leverage and Moderate Liquidity: Fitch expects that the group is likely to maintain financial leverage (measured as gross adjusted debt / Operating EBITDAR) at less than 3.0x over the medium term (13 December: 1.9x, FY13: 1.6x), despite ongoing new investments and expansions across the group.
Rating sensitivities
Negative: Future developments that may individually, or collectively, lead to a negative rating action include:
- Financial leverage being sustained above 3.0x at the consolidated level.
- Increase of financial leverage at the Holdco, manufacturing, pharmaceutical and transportation subsidiaries.
- Any unforeseen pressures on the credit profile of the subsidiaries or Holdco due to new investments.
Positive: Positive rating action is anticipated in the near term in view of the group’s significant investment and expansion plans.
