Fitch Rates Hemas Holdings Debt at 'A+(lka)(EXP)'

Tue Apr 1, 2014 12:51am EDT

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(The following statement was released by the rating agency) COLOMBO, March 31 (Fitch) Fitch Ratings has assigned Sri Lanka-based Hemas Holdings PLC's (HHP) proposed issue of senior unsecured redeemable debentures of up to LKR1bn an expected rating of 'A+(lka)(EXP)'. The final rating on the debentures is subject to the receipt of transaction documents conforming to information already received. The proceeds of the issuance are likely for refinancing existing debt, therefore lengthening HHP's debt maturity profile. HHP is a holding company (holdco) with key wholly owned subsidiaries operating in fast-moving consumer goods, healthcare and transportation sectors. The company also has majority interests in subsidiaries across leisure and power. KEY RATING DRIVERS Diversified Operations: Hemas' rating reflects the essential nature of and resilient demand for end products and services of its key operating subsidiaries, supported by its low financial risk at the Holdco and Group levels. The rating also factors in the businesses' strong brands, leading market share and moderate free cash flow generation Dependence on Subsidiaries Dividends: As a holding company Hemas is dependent on dividends and fees from its operating subsidiaries in order to service debt at the Holdco level. Fitch considers the structural subordination of holdco creditors to be low, because Hemas' key subsidiaries are wholly owned with low leverage. However, should leverage at the holdco and the main, wholly owned operating subsidiaries in manufacturing, pharmaceutical, and transportation increase significantly, there will be negative pressure on the rating. PPA Re-negotiation and Renewal: The power purchase agreement (PPA) of Hemas' main dividend contributing plant Heladhanavi (HD) is up for renewal in Dec 2014. HD is a 100MW plant run as a joint venture between Hemas and state-owned Lakdhanavi. In the event HD's PPA is not renewed the significant contribution to Holdco dividend is likely to reduce. However, Fitch expects this negative impact to be lessened by the fact that the holdco leverage adjusted for its wholly owned subsidiaries is low. Low leverage and Moderate Liquidity: Fitch expects that the group is likely to maintain financial leverage (measured as gross adjusted debt / Operating EBITDAR) at less than 3.0x over the medium term (Dec-13: 1.9x, FY13: 1.6x), despite ongoing new investments and expansions across the group. RATING SENSITIVITIES Negative: Future developments that may individually, or collectively, lead to a negative rating action include: -Financial leverage being sustained above 3.0x at the consolidated level -Increase of financial leverage at the Holdco, manufacturing, pharmaceutical and transportation subsidiaries -Any unforeseen pressures on the credit profile of the subsidiaries or Holdco due to new investments. Positive: Positive rating action is anticipated in the near term in view of the group's significant investment and expansion plans. Additional information is available at www.fitchratings.com and www.fitchratings.lk. Contacts: Primary Analyst Natasha Alles Analyst + 94 11 254 1900 Fitch Ratings Lanka Limited Level 15-04 East Tower World Trade Center Colombo 01 Secondary Analyst Kanishka De Silva Analyst + 94 11 254 1900 Committee Chairperson Vicky Melbourne Senior Director +612 8256 0325 Applicable criteria, 'Corporate Rating Methodology', dated 31 Jan 2014, and 'National Scales Ratings Criteria', dated 30 October 2013, are available at www.fitchratings.com. Media Relations: Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email: bindu.menon@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable Criteria and Related Research: National Scale Ratings Criteria here Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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