Fitch rates Softlogic Holdings Debentures A-(lka)

Fitch Ratings has assigned Sri Lanka-based Softlogic Holdings PLC (SHL) a senior unsecured rating of A-(lka), and simultaneously assigned its proposed issue of redeemable debentures of up to Rs. 750 mn an expected National Long-term A-(lka)(EXP) rating.

The debenture issue is expected to have a tenor of three years, with fixed-rate coupon payments, and would help reduce SHLs exposure to interest rate risk. The proceeds will be used to refinance existing short-term debt at SHL (holding company level).

The senior unsecured rating and proposed debentures are rated in line with SHLs National Long-Term Rating of A-(lka), as they will rank equally with the company’s senior unsecured creditors.

SHLs healthcare business, via its majority stake in Asiri Hospitals Group, benefits from strong structural demand for private-sector healthcare services in Sri Lanka across economic cycles and exhibits low business risk. Robust demand for hospital service should help underpin an increase of dividend income to SHL from Asiri Hospital Group in the medium-term.

As a holding company, SHL is dependent on dividend income from its core operating assets to service its own obligations. Therefore SHL’s creditors are structurally subordinated to creditors at its operating assets.

SHL expects that dividend income from operating assets will increase in 2014, reflecting higher distributions from Asiri Hospitals Group.

SHLs information technology segment, which primarily consists of the distributorship for Nokia phones and Dell computers in Sri Lanka, experienced margin decline in FY12.

Financial leverage at the SHL holding company level is projected to increase to around 5.15x at FYE13 compared with 3.8x at FYE12.