Fitch Rates Hemas Holdings' Debt Final 'A+(lka)'

Fri Apr 4, 2014 1:50am EDT

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(The following statement was released by the rating agency) COLOMBO, April 04 (Fitch) Fitch Ratings has assigned Sri Lanka-based Hemas Holdings PLC's (HHP) senior unsecured redeemable debentures of up to LKR1bn a final rating of 'A+(lka)'. The assignment of the final rating follows the receipt of the final documents conforming to information previously received. The final rating is at the same level as the expected rating assigned on 31 March 2014. HHP is likely to use the proceeds for refinancing existing debt, which will lengthen its debt maturity profile. HHP is a holding company with its main wholly owned subsidiaries operating in the fast-moving consumer goods, healthcare and transportation sectors. The company also has majority interest in subsidiaries that are involved in the leisure and power sectors. KEY RATING DRIVERS Diversified Operations: HHP' 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 holding company and group levels. The rating also factors in the businesses' strong brands, leading market share and moderate free cash flow generation. Dependence on Dividends from Subsidiaries: As a holding company, HHP is dependent on dividends and fees from its operating subsidiaries to service its debt. Fitch considers the structural subordination of creditors of the holding company to be low, because HHP's key subsidiaries are wholly owned with low leverage. However, should leverage at the holding company 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) between the government and the Heladhanavi electricity plant (HD) is up for renewal in December 2014. HD is a 100MW plant run as a joint venture between HHP and state-owned Lakdhanavi. The plant is the main dividend contributor to HHP. In the event HD's PPA is not renewed, dividends paid to the holding company are likely to decrease. However, Fitch expects this negative impact to be mitigated by the fact that the holding company's leverage adjusted for its wholly owned subsidiaries is low. Low Leverage and Moderate Liquidity: Fitch expects the group is likely to maintain financial leverage (measured as gross adjusted debt/Operating EBITDAR) at less than 3.0x over the medium term (December 13: 1.9x; Financial year ended March 2013: 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: -Leverage being sustained above 3.0x at the consolidated level -Increase in leverage at the holding company and its main wholly owned manufacturing, pharmaceutical and transportation subsidiaries -Any unforeseen pressures on the credit profile of the subsidiaries or holding company due to new investments. Positive: Positive rating action is anticipated in the near term following the group's significant investment and expansion. 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 Media Relations: Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email: Additional information is available on Applicable criteria, "Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage", dated 5 August 2013 and "National Scale Ratings Criteria" dated 30 October 2013 are available at Applicable Criteria and Related Research: Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage here National Scale Ratings Criteria 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.