Listed Abans and Singer face pressure from financial subsidiaries

Listed companies with financial service subsidiaries face credit rating pressures due to their subsidiaries reporting medium-term asset growth in the current weak operating environment, Fitch Ratings said. Fitch has factored around 10% average annual asset growth for the financial services subsidiaries of Singer (Sri Lanka) PLC, Abans PLC and Dialog Axiata PLC. “Growth significantly above our expectations could pressure the credit ratings of Singer and Abans, while Dialog should remain stable due to its higher debt headroom,” the rating agency said. Singer, rated AA(lka) with a stable outlook, is potentially the most affected as its financial services subsidiary, and Singer Finance (Lanka) PLC has a large asset base from high loan growth in the last few years, Fitch noted. It notes that Singer has limited headroom at its current rating, which may worsen if the debt-to-tangible equity ratio at Singer Finance rises consistently to more than 7x from 4.5x at the end of the financial year to March 2021, Fitch said.

Abans also rated AA(lka) with a stable outlook, having a balance sheet already stretched on account of the rising debt from a real-estate project: the $180 million, 47-storeyed Colombo City Centre mixed development project that includes a 164-room hotel, 192 luxury apartment units, and 200,000 square feet five-floor shopping mall. According to Fitch, if its financial services subsidiary Abans Finance PLC reported debt to tangible equity above 6x (FY21: 3.4x): the rating could also come under pressure. “However, Abans’s leverage should ease if its near-term plan to sell Abans Finance materialises,” Fitch notes. Fitch said that its financial services adjustments raise the gross-adjusted debt to 20% for Singer and 11% for Abans for the 2021 financial year. “The debt burden of Singer Finance on Singer has been rising recently due to its strong asset growth without a commensurate improvement in its equity,” Fitch said. “On the other hand, loan growth at Abans Finance has been sluggish, leading to a lower burden on Abans”. However, the rating agency does not expect Dialog Finance to affect Dialog (rated AAA with a stable outlook), despite its aggressive debt and deposit-funded expansion plan in financial technology. “We believe the leverage impact will be negligible even if the debt to tangible equity at Dialog Finance rises to 10x (2020: 0.6x) as the parent has operations relatively larger to Dialog Finance assets,” Fitch said.