Fitch assigns Hayleys Fentons first-time national rating of ‘A+(lka)’; outlook stable

Fitch Ratings has assigned Hayleys Fentons Ltd., (HFL) a National Long-Term Rating of ‘A+(lka)’. The outlook is stable.

The rating reflects HFL’s leading market share in domestic rooftop solar panel sales and installation, which drove cash flow in the financial year ending March 2025 (FY25), alongside slowing growth amid regulatory risks. Diversification into power generation over the next few years carries execution risk but could enhance revenue visibility, subject to the weak credit quality of the sole offtaker, Ceylon Electricity Board (CEB, A(lka)/Stable).

HFL’s A+(lka) rating comprises its standalone credit profile of ‘a(lka)’ and a one-notch uplift for support from its stronger parent, Hayleys PLC (AAA(lka)/Stable), reflecting moderate operating incentives but low legal and strategic incentives.

Fitch issued the following drivers for its rating decision.

Rooftop solar sales to ease: Fitch expects HFL’s rooftop solar panel sales in Sri Lanka to decline modestly over the next few years. However, we expect growth in HFL’s other businesses, such as services and solutions for the construction sector, to mitigate the impact on cash flow, supported by recovering consumption and construction activity. Overall, we expect EBITDA from HFL’s existing businesses to remain steady in FY26-FY29, before considering the contribution from planned power generation projects.

HFL is the market leader in the sale and installation of domestic rooftop solar panels, driving combined revenue of about Rs. 19 billion in FY25. Residential, commercial and industrial installations added 129MW of generation capacity in FY25. Sales of rooftop solar panels rose rapidly in FY23-FY24 amid acute power disruptions following Sri Lanka’s economic crisis, and new attractive feed-in-tariffs (FITs) of around Rs. 37 a kilowatt hour in 2022. However, FITs have since been cut to around Rs. 21 a unit, lengthening the payback period and reducing overall consumer savings, as the national grid grapples with rising renewable generation.

Execution risks in power generation: HFL’s plans to construct a 50MW wind power plant and 37 ground-mounted solar power plants with a combined capacity of 149MW, on an alternating current equivalent basis (AC), are subject to execution risk. These projects are contingent on a multitude of approvals from regulators, environmental bodies and local governments, and subject to funding and land acquisition. Commissioning of solar plants and cash flow generation should take a further 90 days on average after power purchase agreements (PPAs) are signed with CEB, while the wind project is likely to be commissioned over 18 months.

HFL has signed several solar PPAs and expects the remainder by end-November 2025, subject to the requisite approvals. Following a 30-day pause to address local community concerns, the wind plant – whose PPA was signed in May 2025 – received Governmental approval to recommence work in September 2025. Commissioning is likely by September 2026, later than HFL’s previous target of April 2026. The wind and solar projects when commissioned will generate around two thirds of annual EBITDA by FY28, diversifying HFL’s cash flow and increasing revenue visibility, but subject to CEB’s counterparty risk.

Leverage to peak on capex: We forecast EBITDA net leverage to rise to a temporary peak of 9.0x in FY27, from 1.0x in FY25, before falling to about 3.0x by FYE28 as projects generate cash flow. Timely project execution is critical for leverage to normalise within rating sensitivities. HFL plans to invest in significant capex in FY26 and FY27, mainly for power projects, funded almost entirely by debt. It is finalising lender agreements for the wind project, before issuing a construction notice to CEB by February 2026 under the PPA. Local banks mostly finance solar projects, with negotiations at various stages.

Interest coverage moderating, but healthy: Fitch expects HFL’s EBITDA interest coverage to decline to around 3.5x over the medium term (FY25: 6.0x), assuming most power projects are commissioned. Annual interest costs will rise, as interest payments are subject to grace periods during project construction, and interest accrued during construction is capitalised and added to outstanding debt balance.

Parent support: Fitch assesses ‘Medium’ operational incentives for Hayleys to support HFL due to fully integrated branding and management between the two entities. Legal incentives are ‘Low’, reflecting the waning parent guarantees on HFL’s bank debt amid the subsidiary’s improving credit profile. However, significant parent guarantees on bank debt have been forthcoming to HFL when required. Strategic incentives for Hayleys to support are also ‘Low’ given the parent’s highly diversified operations.