Singer goes for Rs. 1.5 b debenture; Fitch assigns A- rating
Thursday, 4 December 2014 00:00
-
- {{hitsCtrl.values.hits}}
Singer (Sri Lanka) Plc will raise Rs. 1.5 billion via a listed debenture issue.
The company will offer 10 million rated senior unsecured redeemable debentures at Rs. 100 each with an option to issue a further 5 million debentures in the event of an oversubscription of the original amount.
The official date of opening of the debenture issue is 17 December whilst the public can subscribe from 8 December. The managers to the issue are Agora Securities Ltd.
Fitch Ratings has assigned Singer (Sri Lanka) PLC’s (Singer; A-(lka)/Stable) unsecured redeemable debenture issue of up to Rs. 1.5 b a final National Long-Term rating of ‘A-(lka)’.
The final rating is the same as the expected rating assigned on 2 July 2014, and follows the receipt of documents conforming to information already received.
The debentures are rated in line with Singer’s National Long-Term Rating as they represent senior unsecured obligations of the retailer of consumer durables and would rank equally with the company’s other senior unsecured debt.
Key rating drivers
Margin Pressure: Singer’s National Long-Term rating reflects Fitch’s expectations of margin pressure due to given macroeconomic stresses and the resultant negative impact on demand for consumer durables. This should be partially offset by recent fiscal measures including a 25% reduction in electricity tariffs on households.
In 2013, Singer’s margins shrank due to an increase in value-added tax (VAT) at a time when demand for consumer durables was declining.
This is reflected in leverage of 4.8x (annualised) as at end-1H14, up from 3.3x (annualised) as at end-1H13. Leverage at end-2013 and end-2012 stood at 4.7x and 3.4x, respectively. Strong Market Share: Singer’s strong reputation is illustrated by its ability to secure agency for new brands including Beko, Grundig, Sharp, Dell, Sony and Lenovo.
It has an extensive retail network of over 1,000 retail points in Sri Lanka. Singer’s diversified product portfolio includes its Singer and Sisil in-house brands, which target the mass market and provide Singer with pricepoint diversity.
Well-Managed Consumer Loans: In-house hire purchase facilities, which make products more affordable in line with the mass-market proposition of Singer’s in-house brands, financed around 45% of Singer’s sales in 2013 (2012: 44%). At end-2013, overdue accounts accounted for just 3.7% of the portfolio (end-2012: 2.3%), supported by average durations of less than a year and strong staff incentives for debt recovery, while write-offs were negligible.
Currency Risk: Singer manufactures and locally procures close to 35% of its products through related companies and local suppliers, thus mitigating foreign currency risk.
Rating sensitivities
Negative: Future developments that may, individually or collectively, lead to a negative rating action include:
- A sustained increase in Singer’s leverage (measured as adjusted net debt/EBITDAR excluding Singer Finance) to over 5.5x
- EBITDA margin sustained below 7% (2013: 8%)
- A material weakening in Singer’s (company-level) liquidity profile
- A material weakening of the credit profile of Singer’s 80% subsidiary, Singer Finance (BBB+(lka)/Stable), given strong linkages between the entities
Positive: Future developments that may individually or collectively lead to a positive rating action include:
- Singer’s leverage falling below 4.5x on a sustained basis
- EBITDA margin sustained above 10%
