The assignment of the final rating follows the receipt of final documents conforming to information previously received. The final rating is at the same level as the expected rating assigned on 11 April 2013 (see "Fitch Affirms Singer Sri Lanka Debt at 'A(lka)'; Rates Proposed Bonds 'A(lka)(EXP)" on www.fitchratings.com).
Rating Action Rationale
The issue proceeds are to be used to lengthen the maturity profile of existing debt, thereby improving Singer's liquidity profile, and will help reduce interest rate risk. The debentures are rated in line with Singer's existing unsecured redeemable debentures as they rank equally among themselves, and with Singer's other unsecured debt, in the event of liquidation.
Key Rating Drivers
Singer's rating reflects its market position as a leading consumer durables retailer, its strong brand portfolio, and its island-wide distribution network with coverage of over 1,000 outlets, 381 of which are exclusive. These strengths are counterbalanced by discretionary demand for Singer's products which result in cyclical earnings.
Singer's balance sheet is also exposed to fluctuations in the foreign exchange rate, as 70% of its products are imported and sold domestically. The remaining 30% is sourced domestically which to a certain extent reduces this exposure risk. The group has also managed demand-related risks by extending retail credit through its consumer finance operations. Debtor quality has generally remained satisfactory, with delinquent debtors at 2% of the total at end-2012, while write-offs have been negligible.
Negative:Future developments that may individually, or collectively, lead to negative rating action include:
-A material weakening of Singer's 80% subsidiary Singer Finance PLC's (SF, rated BBB+(lka)/Stable), given the strong linkages between the entities
-A sustained increase in Singer's leverage (measured as adjusted net debt/EBITDAR excluding SF) to over 4.5x (end-2012: 3.4x)
-A material weakening in Singer's (company-level) liquidity profile
-Fixed charge coverage (measured as EBITDAR/interest expense + rent, excluding SF) falling below 1.25x on a sustained basis (end-2012: 2.0x)
Positive: Singer's rating is constrained due to the inherent cyclicality of consumer durable sales
Further details on Singer are available on www.fitchratings.com and www.fitchratings.lk.