Fitch Ratings has announced the assignment of a National Long-Term Rating of ‘AAA(lka)’ to Hayleys PLC’s proposed unsecured senior redeemable debentures, which are valued at up to LKR7 billion.

The debentures’ rating is consistent with Hayleys’ existing National Long-Term Rating and unsecured notes. This alignment is due to the limited subordination risk to debenture holders from subsidiary debt, provided that the subsidiary debt to consolidated EBITDA ratio remains below 2.5x. This ratio increased to 2.9x in the third quarter of the fiscal year ending March 2026, partly due to funding seasonal demand in the consumer and retail sector and working capital needs in the purification sector driven by expanded production capacity.

Fitch anticipates a gradual moderation of this ratio towards 2.5x by FY27, supported by EBITDA growth resulting from a recovering domestic business environment and additional capacity. Failure to achieve this could result in the unsecured debentures being rated a notch below Hayleys’ ‘AAA(lka)’ National Long-Term Rating.

Key Rating Drivers

Rising Operating Cash Flow Growth: Revenue is expected to increase by 19% in FY26, driven by growth across consumer and retail, hand protection, purification, and transportation and logistics segments. The consumer and retail segment benefits from recovering demand in Sri Lanka, while hand protection and purification are poised to gain from capacity expansion and new product lines. The transportation and logistics segment is expected to benefit from rising transshipment volumes in Asia, counterbalancing weaker performance in textiles due to softening demand in key export markets.

The EBITDA margin is projected to moderate to around 10% in FY26 from 11% in FY25, primarily due to challenges in the textiles segment, where increased US tariffs have led to pricing pressure, and the construction segment’s high operating leverage due to underutilized capacity. The EBITDA margin is expected to recover to around 11% in FY27 with price adjustments and improved capacity utilization. Cash flow from capacity expansion in hand protection and purification is anticipated to materialize fully in FY27.

Geographic and Business Diversification: Eight major businesses contribute over 80% of Hayleys’ group EBIT, with direct and indirect exports accounting for 53% of revenue in FY25. Approximately 15% of revenue is derived from Europe and the US, indicating limited exposure to slower-growth developed markets.

Hayleys has diversified its manufacturing operations beyond Sri Lanka, with only 55% of its purification segment capacity located locally, the remainder being in Thailand and Indonesia. The hand protection segment, producing rubber gloves, operates in Thailand, the world’s largest natural rubber source.

Strong Market Presence: Hayleys stands as a leading supplier in Sri Lanka’s logistics, consumer-durable retail, and tea export industries. It also holds a significant share in the fragmented global hand protection and coconut shell-based activated carbon purification markets. Strong customer relationships bolster its position, with some units facing significant customer concentration, a risk mitigated by high switching costs and established ties. Hayleys’ vertical integration enhances its competitive position by capturing more profits along the value chain and maintaining strong relationships with suppliers.

Steady Leverage: EBITDAR net leverage is expected to remain around 3.0x-3.5x from FY26 to FY28, excluding the step-down subsidiary, Singer Finance (Lanka) PLC (SFP, BBB+(lka)/Stable). SFP’s net debt and EBITDAR are excluded from Hayleys’ credit profile assessment, as it does not materially fund Hayleys’ product sales or share its brand. Hayleys is projected to spend around LKR20 billion annually on capacity expansion across its segments, boosting revenue growth but maintaining negative free cash flow.

Adequate Holding-Company Financial Profile: Hayleys’ strong ownership and control of its operating subsidiaries enable it to extract subsidiaries’ operating cash flow for servicing obligations. Holding-company interest coverage is expected to remain comfortably above 1.0x over the medium term, supporting the view of limited cash flow subordination at the holding company.

Peer Analysis: Hayleys is rated at the same level as Lion Brewery (Ceylon) PLC (AAA(lka)/Stable), which benefits from more defensive cash flow and market leadership in Sri Lanka’s beer industry. Lion’s financial profile is stronger due to modest investment requirements compared to Hayleys’ diversified operations. Melstacorp PLC (AAA(lka)/Stable) shares a rating with Hayleys, with Melstacorp benefiting from defensive cash flow and a stronger FCF profile due to its leadership in the domestic spirits market. Hemas Holdings PLC (AAA(lka)/Stable) is also rated equally, driven by defensive businesses and strong liquidity. Sunshine Holdings PLC (AA+(lka)/Stable) is rated one notch below Hayleys due to smaller scale and limited geographical diversification, though with a better financial profile and lower leverage.

Hayleys’ higher rating compared to large domestic banks, non-bank financial institutions, and insurance companies is due to its reduced exposure to sovereign stress and broader economic sector exposure.

Fitch’s Key Rating-Case Assumptions:

• Revenue growth of 19% in FY26 and 6% in FY27, supported by growth in key segments.
• EBITDA margin around 10% in FY26, recovering to 11% in FY27.
• Capex averaging around LKR20 billion from FY26-FY29.
• Dividend payout of around LKR4.5 billion in FY26, with 10% annual growth in dividends from FY27-FY29.
• Conclusion of a LKR9 billion rights issue in FY26 for new investments and debt repayment.

RATING SENSITIVITIES:

Factors that Could Lead to Negative Rating Action/Downgrade:

• Group EBITDAR net leverage (excluding SFP) exceeding 4.0x for a sustained period.
• Group EBITDAR fixed-charge coverage falling below 2.0x for a sustained period (FY25: 3.1x).

Factors that Could Lead to Positive Rating Action/Upgrade:

• No scope for an upgrade as the rating is at the highest level on the Sri Lankan National Rating scale.

Liquidity and Debt Structure: At the end of December 2025, Hayleys held LKR55 billion in unrestricted cash against LKR160 billion in debt maturing over the next 12 months. This excludes customer deposits and debt at SFP of LKR46 billion. Short-term debt is expected to be rolled over by banks, supported by LKR135 billion in net working capital and a healthy working capital cycle. Hayleys has demonstrated strong access to domestic banks, further supporting its liquidity profile.

Issuer Profile: Hayleys is a prominent listed domestic conglomerate with significant market positions in transportation, consumer and retail, textiles, rubber gloves, and plantations. Approximately half of its revenue is derived from outside Sri Lanka.