FINANCIAL CHRONICLE – Fitch Ratings has assigned a National Long-Term Rating of ‘AAA(lka)’ to the proposed unsecured senior redeemable debentures by Sri Lankan conglomerate Hayleys PLC, amounting up to 7 billion rupees. This rating aligns with Hayleys’ existing National Long-Term Rating and unsecured notes.
Fitch explained that the subordination risk to debenture holders from subsidiary debts is limited, provided that the subsidiary debt to consolidated EBITDA ratio does not exceed 2.5x. Currently, this ratio has risen to 2.9x in the third quarter of FY26, largely due to increased funding for seasonal demand in the consumer and retail sector and expanded capacity in the purification sector. However, Fitch anticipates this ratio to gradually decrease towards 2.5x by FY27 as a result of EBITDA growth fueled by a recovering domestic market and new capacity additions.
Key Rating Drivers include rising operating cash flow growth, with an expected 19% revenue increase in FY26. This growth is driven by sectors such as consumer and retail, hand protection, purification, and transportation and logistics. The recovery in Sri Lanka’s consumer and retail demand, alongside capacity expansion in hand protection and purification, is expected to offset weaker performance in textiles due to softening demand in key export markets. Additionally, the transportation and logistics segment is poised to benefit from increased transshipment volume in Asia.
The EBITDA margin is projected to decline to around 10% in FY26, down from 11% in FY25, attributed to pricing pressure in the textiles segment and high operating leverage in underutilized construction segments. However, it is expected to recover to approximately 11% in FY27 as price adjustments and improved capacity utilization take effect. Full-year cash flow from capacity expansion in hand protection and purification is anticipated in FY27.
Hayleys benefits from geographic and business diversification, with eight businesses generating over 80% of group EBIT. Exports, both direct and indirect, accounted for 53% of revenue in FY25, with about 15% of revenue derived from Europe and the US. The company has diversified its manufacturing operations, with only 55% of its purification segment capacity based in Sri Lanka, and the remainder in Thailand and Indonesia. The hand protection segment operates in Thailand, a global leader in natural rubber production.
Hayleys holds a strong market presence in Sri Lanka’s logistics, consumer-durable retail, and tea export industries, and maintains a significant share in the global hand protection and coconut shell-based activated carbon purification markets. Strong customer relationships and vertical integration enhance its competitive position, despite some customer concentration risks, which are mitigated by high switching costs and established ties.
Fitch expects Hayleys’ EBITDAR net leverage to remain around 3.0x-3.5x from FY26 to FY28, excluding the contribution from its subsidiary, Singer Finance (Lanka) PLC (SFP). This exclusion is due to SFP not materially contributing to Hayleys’ product sales or sharing a common brand. Hayleys is projected to allocate approximately LKR20 billion annually for capacity expansion, fostering revenue growth but maintaining negative free cash flow.
The holding company’s financial profile is supported by strong ownership and control over its operating subsidiaries, enabling it to utilize subsidiaries’ operating cash flow to meet obligations. Interest coverage at the holding-company level is expected to remain comfortably above 1.0x in the medium term, indicating limited cash flow subordination.
In comparison with peers, Hayleys shares the same rating level as Lion Brewery (Ceylon) PLC and Melstacorp PLC, both rated ‘AAA(lka)/Stable’. Despite Lion’s more defensive cash flow and market leadership in Sri Lanka’s beer industry, Hayleys’ broader diversification balances some of the cyclical risks in its business segments. Melstacorp benefits from a stronger FCF profile and market dominance in the domestic spirits market, while Hayleys’ geographical and market diversity provides a mitigated risk profile.
Hemas Holdings PLC is also rated at the same level as Hayleys, with strengths in defensive businesses like pharmaceuticals and consumer products. Though Hemas has a smaller scale and limited geographical diversification compared to Hayleys, its stronger FCF and liquidity offset these factors.
Sunshine Holdings PLC, rated one notch below Hayleys, has a smaller operating scale and limited geographical diversification, along with regulatory risks in some businesses. However, Sunshine’s conservative expansion strategy and lower leverage provide a better financial profile.
Fitch’s key rating-case assumptions include a 19% revenue growth in FY26, supported by various business segments, and an EBITDA margin of around 10% in FY26, recovering to 11% in FY27. Capital expenditure is expected to average around LKR20 billion from FY26 to FY29, with a dividend payout of approximately LKR4.5 billion in FY26.
Hayleys had LKR55 billion in unrestricted cash at the end of December 2025, against LKR160 billion in debt maturing within the next 12 months. This includes short-term debt but excludes customer deposits and SFP debt. The company is expected to roll over short-term debt, supported by a robust net working capital and strong access to domestic banks.
Hayleys is a prominent domestic conglomerate with significant positions in various sectors, including transportation, consumer and retail, and textiles, with about half of its revenue sourced internationally.
