Tuesday, 3 December 2013 01:30
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Fitch Ratings has assigned the Abans Ltd. issue of up to Rs. 2 billion of senior unsecured redeemable debentures a final National Long-Term Rating of ‘A-(lka)’.
The final rating is the same as the expected rating assigned on 23 September (see ‘Fitch Rates Abans’s Debentures ‘A-(lka)(EXP)’ on www.fitchratings.com), and follows receipt of final documents conforming to information previously received.
The proposed debentures are rated in line with the Sri Lanka-based retailer’s National Long-Term Rating of ‘A-(lka)’, as they will rank equally with the company’s other senior unsecured creditors in the event of liquidation.
Key rating drivers
Higher Leverage: The Negative Outlook on Abans’ National Long-Term Rating reflects expectations that a slowing economy may affect the company’s ability to reduce net leverage (lease-adjusted net debt/operating EBITDAR, excluding Abans Finance PLC) to below 4.5x, the level at which negative rating action may be considered, by the end of March 2014 and maintain it below that level. Fitch expects slower revenue growth in the financial year ending March 2014 (FY14), and hence lower profitability in the company’s cyclical core consumer durable business.
Strong Market Share: Abans is a leading retailer of consumer durables, with an extensive distribution network of 1,059 outlets, including 439 of its own stores. Portfolio concentration has declined as LG’s revenue share reduced over the last three to four years in favour of other brands including HP, Haier, Toshiba, Philips, Whirlpool, and Sanyo.
Moderate Refinancing Risk: As at the end of FY13, Abans had Rs. 459 million and Rs. 1.6 billion of cash and unutilised credit facilities, respectively against Rs. 2.3 billion of debt maturing in FY14.
Fitch expects free cash flow (defined as operating cash after dividends and capex) to remain negative in FY14 due to the working capital-intensive nature of the retail business, which will require a further increase in borrowings. These risks are mitigated by the strength of Abans’ core business and its access to domestic banks.
Rating sensitivities
Negative: Future developments that may, individually or collectively, lead to a negative rating action include:
Leverage being sustained above 4.5x at the end of FY14 and beyond.
Fixed charge coverage (measured as EBITDAR/Interest expense and rent) falling below 1.25x on a sustained basis (FY13:1.53x).
Material deviation in its real estate project from current expectations resulting in further cash injections from Abans.
A material weakening of the credit profile of Abans Finance PLC.
Positive: No positive rating action is expected given that the rating is on a Negative Outlook. However, future developments that may individually or collectively lead to the outlook being revised to Stable include:
Leverage falling below 4.5x on a sustained basis.
Smooth progress of its real estate project, which will limit Abans’ financial liability to the initial investment value.
