Fitch affirms Singer Debt at ‘A(lka)’; rates proposed Bonds ‘A’
Fitch Ratings has affirmed retailer Singer (Sri Lanka) PLC’s (Singer)
outstanding senior unsecured redeemable debentures at National Long-Term
‘A(lka)’. The Outlook is Stable.
Fitch has assigned an ‘A(lka)(EXP)’ expected rating to its upcoming
unsecured redeemable debentures of up to Rs1.5bn. The final rating on
the debentures is subject to the receipt of final transaction documents
conforming to information already received. A complete list of Singer’s
ratings can be found at the end of this release.
The proposed debentures are rated in line with Singer’s existing
unsecured redeemable debentures, given that the proposed issue will rank
equally with the company’s unsecured creditors, in the event of
liquidation. Singer aims to use the debenture proceeds to lengthen the
maturity profile of its existing debt, which will improve liquidity and
reduce its interest rate risk.
Strong market position: Singer’s ratings reflect its position as a
leading retailer of consumer durable products in Sri Lanka, with strong
in-house brands, and a wide distribution network of over 1,000 outlets,
including 381 exclusive showrooms. Its Singer and Sisil brands account
for the majority of sales and are well-entrenched in the domestic
market. Singer also retails global brands such as Samsung, Hitachi, HTC,
Whirlpool, Beko, and Grundig, enabling it to diversify its portfolio
across price points and to cater to varying customer needs.
Cyclical demand and currency risk: Singer is exposed to foreign
currency risk, as the majority of its products are imported and sold
domestically.
Singer has reduced this risk to an extent by manufacturing nearly 30%
of its products through related companies in Sri Lanka. The
non-essential nature of consumer durables also means that demand
fluctuates widely through economic cycles, which is a business risk for
retailers such as Singer.
Well-managed consumer loans: Singer uses in-house hire-purchase (HP)
financing to market its products to rural masses who otherwise have
limited access to credit. HP sales accounted for almost 50% of revenue
in 2011 and 2012, and typically increase proportionately during slower
economic periods. Singer has managed this high-risk and highly
profitable portfolio well, helped by average durations of less than one
year, average loan-to-value ratios of about 85%, and strong staff
incentives for debt-recovery. At end-2012, delinquent HP debt stood at
2% of the portfolio, while write-offs have been negligible.
Weaker demand in 2013: Fitch expects a slowdown in demand for
consumer durables in 2013, on the back of a weak domestic economy,
particularly if energy prices are increased as expected. Credit sales
are likely to support revenue and profit growth during this period.
However, inflationary cost pressures are likely to constrain EBITDAR
margins, and together with higher working capital requirements, will
result in weaker credit metrics. Nevertheless, Singer has sufficient
rating headroom. |