Fitch Ratings has downgraded Sri Lanka- based apparel manufacturer Hela Apparel Holdings PLC's National Long-Term Rating to 'AA-(Ika)', from 'AA(Ika)'. The Outlook is Negative.
The downgrade is based on our forecast that Hela's interest coverage and leverage will weaken to below our negative rating sensitivities in the financial year ending March 2023 (FY23) and FY24. The business requires high working capital for growth, while profitability is challenged by weakening global demand. The high interest-rate environment is also pressuring liquidity with high borrowing costs.
The Negative Outlook reflects the risk of prolonged weakness in end-market demand and potential supply-chain issues, which could delay an improvement in profitability. Our expectation of lower effective borrowing cost from 2025 is also at risk amid Sri Lanka's weak economic climate.
Persistently high borrowing costs could keep interest coverage below 1.
3x, which may pressure the 'AA-(Ika)' rating.
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