Fitch rates Abans' Senior Debt 'A-(lka)'

Fitch Ratings Lanka has assigned Abans (Private) Limited's (Abans) proposed senior unsecured debenture issue of up to LKR 500 m a National Long-Term rating of 'A-(lka)'. The debenture will rank pari passu with other senior debt of Abans.

The rating reflects Abans' strong market position as one of Sri Lanka's largest retailers of consumer durables, supported by its brand, and its extensive retail and distribution network.

The rating is constrained by the company's evolving corporate governance profile.

The debenture is expected to be issued at a fixed coupon rate with a bullet principal repayment in four years. The proceeds will be utilized to refinance existing short-term debt and to fund working capital.

The refinancing of short-term debt will help Abans to improve its liquidity position, while the fixed coupon interest repayments will reduce future earnings volatility if market interest rates rise. At end-September 2011, total group debt amounted to Rs. 4.83 billion.

Abans' overall financial performance improved, as expected, in 2011 on the back of a revival in economic activity and the removal of import duties and levies across most of its products in 2010.

The group's financial leverage, measured as adjusted net debt to operating EBITDAR, improved to 2.1x at FY11 (FY10: 5.5x). Abans' ability to service interest on its debt and fixed rental payments (such as lease rentals on its retail network), measured by funds from operations / fixed charges, improved to 4.3x in FY11 (FY10: 1.4x).