Sri Lanka MGT Knitting ‘BBB+(lka)’ rating confirmed, outlook negative

Nov 30, 2009 (LBO) - Fitch Ratings Lanka said it has confirmed Hayleys MGT Knitting Mills' (HMGT) National Long-term rating at 'BBB+(lka)' and lowered the outlook to negative from stable. Fitch said in a statement the fabric maker faces possible loss of duty free access to key European markets and expiry of a tax holiday which could erode profit margins and profitability.

"The revision in Outlook is based on Fitch's view on HMGT's possible exposure to margin pressures on sales to the European Union in the event of the withdrawal of the Generalised System of Preferences Plus scheme (GSP+)," Fitch said in a statement.

In the 2009 financial year, the company's indirect sales to the European Union were about 70 percent.

The Hayleys conglomerate has a 68 percent stake in MGT Knitting Mills, one of the top three domestic knitted fabric manufacturers to Sri Lankan exporters of apparel, the island's main industrial export.

Fitch also said it notes HMGT's weakened working capital trend, historically high dividend payout level to its parent Hayleys and sizable capital spending program - all of which weigh on its free cash flow and add pressure to the rating over the medium-term.