Fitch rates Hayleys’ proposed debentures ‘AAA(lka)’

Fitch Ratings has published the National Long-Term Rating of ‘AAA(lka)’ for Sri Lankan conglomerate Hayleys PLC’s (AAA(lka)/Stable) proposed senior unsecured redeemable debentures of up to Rs. 7 billion.

“The proposed debentures are rated in line with Hayley’s National Long-Term Rating and existing unsecured notes because we believe there will be limited subordination risk to debenture holders from secured debt at the holding company and debt at subsidiaries, which will rank ahead of the debentures. The proceeds from the debentures will be used to repay the company’s existing short-term debt,” it said in a rating commentary.

Hayleys’ rating reflects its large operating scale and diversification across several prominent businesses. Its significant export earnings drive sustainable operating cash flow, despite temporary challenges in some segments. We forecast the company’s financial profile to remain commensurate with its rating over the next two years.

Fitch expects revenue to rise by about 10 percent in the financial year ending March 2025 (FY25), following a 12 percent decline in the previous financial year. This will be supported by the transportation and logistics and consumer and retail segments, which account for 38 percent of revenue.

Furthermore, a recovering domestic economy is reviving construction, tourism and retail demand, which bodes well for the construction material, leisure, and consumer and retail segments, which comprise 22 percent of the company’s revenue. 

Cost-reflective energy pricing will continue to drive demand for renewable energy sources, supporting the projects and engineering segment, which contributes 5 percent of revenue.

EBITDAR net leverage is expected to increase to 3.5x in FY25 (FY24: 3.3x), driven by capex and a higher dividend payout. We forecast capex of around Rs.22 billion during FY25-FY28, with the majority allocated to the logistics and projects divisions. However, it expects EBITDAR net leverage to decrease from FY26-FY28, supported by improving cash flows. Hayleys’ financing costs should decline amid falling interest rates, leading to an improvement in EBITDAR fixed charge coverage to approximately 3.0x over the next few years, up from around 2.0x in FY24.

Eight businesses generate 80 percent of group EBIT. Direct and indirect exports account for 54 percent of revenue, with only 30 percent from Europe and the US, indicating low exposure to slower-growth developed markets.

Hayleys’ manufacturing locations are also diversified beyond Sri Lanka. Only 55 percent of its purification segment capacity is in Sri Lanka, with the rest in Thailand and Indonesia. The hand protection segment, which produces rubber gloves, also operates in Thailand, the world’s largest source of natural rubber.