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Fitch Assigns Abans' Notes 'BBB+(lka)' Final Rating
December 8, 2014 / 1:42 AM / 3 years ago

Fitch Assigns Abans' Notes 'BBB+(lka)' Final Rating

(The following statement was released by the rating agency) COLOMBO/SYDNEY, December 07 (Fitch) Fitch Ratings has assigned Abans Plc's (Abans; BBB+(lka)/Negative) senior unsecured redeemable debenture issue of up to LKR2bn a final National Long-Term rating of 'BBB+(lka)'. The final rating is the same as the expected rating assigned on 21 November 2014, and follows the receipt of documents conforming to information already received. The debentures are rated in line with Abans' National Long-Term Rating as they will rank equally with the company's other senior unsecured creditors. The debenture is expected to be issued in three tranches with maturities of three, four, and five years at fixed coupon rates. The proceeds will be used to re-finance part of the company's short-term borrowings and will help reduce Abans' exposure to refinance and interest rate risk. KEY RATING DRIVERS Weakening Credit Metrics: Abans' net leverage, as measured by adjusted net debt/EBITDAR (excluding finance subsidiary Abans Finance Plc), increased to 8.05x in the financial year ended 31 March 2014 (FY14) from 5.25x in FY13. Abans' fixed-charge coverage (EBITDAR/gross interest + rent, excluding Abans Finance Plc) deteriorated to 0.82x in FY14 from 1.34x in FY13. The deterioration was mainly due to EBITDAR margin (excluding Abans Finance Plc) contracting to 6.5% in FY14 from 9.2% in FY13 because of subdued demand, intense competition and a shift towards lower margin products. Although the company has plans to reduce its debt, Fitch expects Abans' leverage to remain above 4.5x in the medium term due to a weak recovery in EBITDAR margins. Leading Consumer Durable Retailer: Abans is one of the leading retailers of consumer durables in Sri Lanka, and it has a strong brand portfolio and extensive distribution network. Abans' revenues are supported by its in-house hire-purchase operations, which contributed to 40% of the revenues in FY14. Abans's hire-purchase book is prudently managed with higher down payment requirements and an efficiently and closely monitored recovery system, which has helped the company maintain a low delinquency rate. Real Estate Project Risk: Abans's investment in a mixed-use development called Colombo City Centre will be capped at LKR1.9bn, most of which was incurred in FY14. Even though the equity contribution is capped, any delay in debt funding or pre-sales of the project could result in further capital calls for Abans. Furthermore, any delays to construction, which is due to run from FY15-FY17 could increase the business risk for Abans. Abans is undertaking the project, which has retail, hotel, and apartment components, with Singapore-based Silver Needle Hospitality. RATING SENSITIVITIES Negative: Future developments that may, individually or collectively, lead to a negative rating action include: - A sustained increase in Abans' adjusted net debt/EBITDAR excluding Abans Finance Plc to over 5.5x - Fixed-charge coverage reducing below 1.25x on a sustained basis - A material delay in progress on the Colombo City Centre project or additional capital calls for the project - Any delay in the scheduled repayments from related parties. Positive: No positive rating action is expected given that the rating is on Negative Outlook. However, future developments that may individually or collectively lead to the Outlook being revised to Stable include: - Smooth progress of the Colombo City Centre project, which will limit Abans' financial liability to the initial investment value. - Improvement in the retail environment as reflected in sustained improvement in EBITDAR margins above 7% Contact: Primary Analyst Nadika Ranasinghe, CFA Vice President +94 11 254 1900 Fitch Ratings Lanka Limited Level 15-04 East Tower World Trade Center Colombo 01 Secondary Analyst Shyamila Serasinghe 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: bindu.menon@fitchratings.com. Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(lka)' for National ratings in Sri Lanka. Specific letter grades are not therefore internationally comparable. Additional information is available at www.fitchratings.com. Applicable criteria, 'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage', dated 28 May 2014, and 'National Scale Ratings Criteria', dated 30 October 2013, are available at www.fitchratings.com. Applicable Criteria and Related Research: Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage here National Scale Ratings Criteria 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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