Fitch assigns ‘AAA(lka)’ rating to Hayleys proposed Rs. 7 b debentures

Fitch Ratings has assigned a National Long-Term Rating of ‘AAA(lka)’ to Hayleys PLC’s proposed unsecured senior redeemable debentures of up to Rs. 7 billion.

The debentures are rated in line with Hayleys’ National Long-Term Rating and existing unsecured notes. This is because subordination risk to debenture holders from debt at subsidiaries is limited, provided the ratio of subsidiary debt to consolidated EBITDA remains no higher than 2.5x. The ratio rose to 2.9x in 3QFY26 (financial year ending March), in part to fund seasonal demand in the consumer and retail sector, as well as a working capital increase in the purification sector due to expanding production capacity.

However, Fitch expects the ratio to moderate gradually towards 2.5x in FY27 and thereafter, driven by EBITDA growth from a recovering domestic business environment and new-capacity additions. An inability to achieve this could lead to the unsecured debentures being rated one notch lower than Hayleys’ National Long-Term Rating of ‘AAA(lka)’.

Fitch issued the following key drivers for its rating decision:

Rising Operating Cash Flow Growth: We expect revenue to rise by 19% in FY26, driven by the consumer and retail, hand protection, purification and transportation and logistics segments. Consumer and retail business is benefiting from recovering demand in Sri Lanka, while hand protection and purification should gain from capacity expansion and new product lines. We also expect the transportation and logistics segment to benefit from rising transshipment volume in Asia. This growth should counterbalance weaker performance in textiles on softening demand in key export markets.

We expect the EBITDA margin to moderate to around 10% in FY26 from 11% in FY25, driven by the textiles segment, where softening volumes due to increased US tariffs have led to pricing pressure, while the construction segment is facing high operating leverage due to underutilised capacity. The EBITDA margin should recover to around 11% in FY27, once the full impact of price adjustments and improving capacity utilisation in these segments is realised. We also expect full-year cash flow from capacity expansion in hand protection and purification to materialise during FY27.

Geographic and Business Diversification: Eight businesses generate over 80% of Hayleys’ group EBIT, while direct and indirect exports accounted for 53% of revenue in FY25. Around 15% of revenue stems from Europe and the US, indicating low exposure to slower-growth developed markets.

Hayleys has also diversified its manufacturing operations beyond Sri Lanka. Only 55% of its purification segment capacity is local, with the rest located in Thailand and Indonesia. The hand protection segment, which produces rubber gloves, operates in Thailand, the world’s largest source of natural rubber.

Strong Market Presence: Hayleys is a leading supplier in Sri Lanka’s logistics, consumer-durable retail and tea export industries. It also has a prominent share of the fragmented global hand protection and coconut shell-based activated carbon purification markets. Strong customer relationships underpin its position. Some units face significant customer concentration, but the risk is mitigated by high switching costs and established ties. Hayleys’ vertical integration, which enables it to capture more profits along the value chain, and strong relationships with suppliers strengthen its competitive position.

Steady Leverage: We expect EBITDAR net leverage to stay at around 3.0x-3.5x in FY26-FY28, excluding Hayleys’ step-down subsidiary, Singer Finance (Lanka) PLC (SFP, BBB+(lka)/Stable). We exclude SFP’s net debt and EBITDAR to assess Hayleys’ credit profile, as the subsidiary does not materially fund Hayleys’ product sales or share a common brand. We expect Hayleys to spend around LKR20 billion in annual capex on capacity expansion across its business segments, which should boost revenue growth but will keep free cash flow (FCF) negative.

Adequate Holding-Company Financial Profile: Hayleys strong ownership and control of its operating subsidiaries allow it to extract subsidiaries’ operating cash flow to service its obligations. We expect holding-company interest coverage - calculated as cash flow from operations net of interest paid/interest paid - to remain comfortably above 1.0x over the medium term. This supports our view of limited cash flow subordination at the holding company.

Fitch’s key rating-case assumptions

• Revenue growth of 19% in FY26 and 6% in FY27, supported by growth in the consumer and retail, hand protection, purification, and transportation & logistics segments.
• EBITDA margin of around 10% in FY26 (down by 83bp YoY), due to pressure on margins in the textiles and construction segments; to recover to 11% in FY27, supported by a recovery in these segments and capacity expansion in others.
• Capex averaging around Rs. 20 billion over FY26-FY29, similar to levels over the last few years.
• Dividend payout of around Rs. 4.5 billion in FY26, with 10% annual growth in dividend per share from FY27-FY29.
• Conclusion of rights issue of Rs. 9 billion in FY26, with proceeds used to finance new investments and repay debt.

Rating sensitivities

• Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

- Group EBITDAR net leverage (excluding SFP) increasing to above 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, Individually or Collectively, Lead to Positive Rating Action/Upgrade

- There is no scope for an upgrade, as the rating is already at the highest level on the Sri Lankan National Rating scale.

Liquidity and debt structure

Hayleys had Rs. 55 billion in unrestricted cash at end-December 2025 against Rs. 160 billion in debt maturing in the next 12 months. This includes short-term debt but excludes customer deposits and debt at SFP of Rs. 46 billion. We expect banks to roll over short-term debt as they are backed by Rs. 135 billion in net working capital on the balance sheet and a healthy blended working capital cycle across the various business segments. Hayleys has also demonstrated strong access to domestic banks as one of Sri Lanka’s largest listed domestic corporates, which further supports its liquidity profile.

Issuer profile

Hayleys is a large listed domestic conglomerate with prominent market positions in diversified business sectors, including transportation, consumer and retail, textiles, rubber gloves, and plantations. It derives around half of its revenue from outside Sri Lanka.