Fitch rates Singer Finance’s proposed senior debt ‘BBB+ (EXP)’

Tuesday, 4 June 2013 11:05 - - {{hitsCtrl.values.hits}}

Fitch Ratings has assigned Singer Finance (Lanka) PLC’s (BBB+ (lka)/Stable) proposed listed senior unsecured redeemable debentures of up to Rs. 1,250 million a ‘BBB+ (lka)(EXP)’ National Long-Term expected rating.

The agency will assign a final rating to the issue subject to the receipt of final transaction documents conforming to information already received.

Rating action rationale

The issue has been rated at the same level as Singer Finance’s National Long-Term rating of ‘BBB+ (lka)’, as they will constitute direct, unconditional, unsecured and unsubordinated obligations of the company.

The issue is expected to have fixed rate coupon interest payments and will help to reduce the company’s exposure to interest-rate risk. The issue will have three tranches with bullet principal repayments in the second, third and fourth years. The issue proceeds will be utilised to lengthen the maturities of existing short-term-debt thereby improving Singer Finance’s liquidity position.

Key rating drivers

Singer Finance’s rating reflects Fitch’s expectation that extraordinary support will be forthcoming from its parent, Singer (Sri Lanka) PLC (Singer; A (lka)/Stable, 80.4% ownership in Singer Finance), given the subsidiary’s strategic importance to Singer. The agency believes Singer and Singer Finance to be closely linked based on the following factors: share of a common brand; Singer’s influence in the subsidiary’s operations at a board-level; the existence of common creditors and the subsidiary’s role in providing financing for the parent’s products.

However, there is a two-notch rating differential between Singer and Singer Finance, as Fitch believes Singer Finance is not a core subsidiary of Singer. Singer Finance contributed an average of 16% to group pre-tax profit from 2009 to 2012. Moreover, most of Singer Finance’s financing exposure is related to non-Singer products.

Rating sensitivities

Any changes in Singer’s ability or willingness to extend extraordinary support, as reflected in a change to Singer’s rating, a material reduction in Singer’s ownership in Singer Finance, or a change in Singer Finance’s strategic importance to Singer, may trigger changes to Singer Finance’s rating.

Singer raised its stake in Singer Finance to 80.4% from 75% by injecting Rs. 582.2 million of equity in 2012. In April 2012, the subsidiary started financing sales at an increasing number of Singer’s flagship ‘Mega’ stores. Singer Finance contributed 19% to the total group pre-tax profit as at end December 2012.