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FITCH affirms John Keells Holdings at AAA (LKA) ; Outlook stable
20/03/09 |
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FITCH AFFIRMS JOHN KEELLS HOLDINGS AT 'AAA(LKA)'; OUTLOOK STABLE
Fitch Ratings-Colombo/Mumbai/Singapore-20 March 2009: Fitch Ratings has today affirmed the
National Long-term rating of Sri Lanka's John Keells Holdings PLC (JKH) at 'AAA(lka)'. Fitch has
also affirmed the National Long-term rating on JKH's senior unsecured notes at 'AAA(lka)'. The
Outlook remains Stable.
JKH's rating reflects the diversified nature of its businesses, the currently strong financial profile driven
in part by its high cash position (estimated at LKR10bn as of 3 March 2009 at the holding company),
continued strong operating cash generating ability, and the dominant market share of some subsidiaries.
However, Fitch notes that JKH has yet to announce plans with regards to the deployment of its cash
assets. Should these deployments be in long-term projects with aggressive investment schedules, as
well as protracted projected dividend flows, JKH's credit metrics can be expected to weaken over the
medium term.
As such, Fitch notes that that there remains some probability of event risk with regards to JKH's ratings
-which the agency will continue to monitor and take necessary rating actions as warranted.
Fitch expects JKH's bunkering business (post FY08 margin erosion) and the Maldivian hotels segment
to overcome operational restrictions faced in FY09 and provide more standard returns in FYE10. The
agency also takes comfort from the expected contributions to JKH's cash flows in the near term from
the property sector (in FYE10) as well as the customary dividend flow from South Asian Gateway
Terminal (SAGT) - the container handling associate of JKH group (increased ownership from 34% to
42% during FY09).
JKH has maintained its financial structure relatively well with significant equity issues (LKR13bn in
FY07) leading to a strong balance sheet. In April 2008, JKH drew down on an USD75m debt facility
from International Finance Corporation (IFC) with the option to use the funds for investments into new
ventures. Part of these cash balances have been used to increase the group's ownership stake in existing
ventures (such as SAGT, Ceylon Cold Stores, Union Assurance and John Keells PLC) as well as to
repurchase 4% of the shares outstanding in November 2008.
Key industry level challenges over the short term remain the expected slowdown in transshipment
volumes impacting its transport segment, as well as the slowdown in tourism in the Maldives. Fitch also
notes that the ability of the remaining property project to recognise its planned revenue and profits
according to schedule may be somewhat pressured in the current environment. However, Fitch believes
that these JKH ventures remain capable of providing adequate profitability in the near term even under
these stressed conditions, based on dominant market position and past performance.
JKH is one of Sri Lanka's largest and most diversified corporates with interests in container terminal
operations, sale of marine fuels and cargo logistics operations, resorts and other tourism related
operations, property development, manufacturing and distribution of food and beverage products,
consumer retailing, as well as insurance and banking among others. It reported revenues and EBITDA
of LKR41.8bn and LKR7.7bn (excluding interest income) respectively for the financial year ended
March 2008 and LKR31.1bn and LKR5.0bn, respectively, as at Q309. As of December 2008, JKH had
a net debt position of LKR2.2bn and a gross debt position of LKR20.8bn, whilst the net interest
coverage (fund flow from operations to net interest) was strong due to the significant interest income
earned - LKR1.6bn for 9M09. The holding company's borrowings increased to 53.5% of total group
debt as at December 2008 due to the IFC facility, although the company's expected strong cash
dividend receipts from its operating subsidiaries provide comfort at the holding company level.
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.
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