SRI LANKA FITCH AFFIRMS FABRIC MAKER'S LONG-TERM RATING.

COLOMBO, Aug 1 Asia Pulse - Fitch Ratings Lanka has affirmed Hayleys MGT Knitting Mills' (HMGT) national long-term rating at 'BBB+(lka)' with a stable outlook but warned of the risk of slowing sales and loss of duty free access to European markets.

Fitch said in a statement the rating reflects Hayleys MGT Knitting Mills' "strong credit matrix and market position".

But Fitch noted the rating is currently constrained by a potential withdrawal of the Generalised System of Preferences Plus (GSP+) scheme by the European Union (EU) that gives duty free access to Sri Lankan clothing exports to European markets.

This was because of the significant volume of indirect sales to the EU by the firm which supplies knitted fabric to Sri Lanka's apparel industry.

"In addition, a tightening of global demand for garments, higher local competition in the medium-term and significant cost increases remain challenges."

The EU's decision on re-awarding or withdrawing GSP+ scheme to Sri Lanka acts as an "overhang" on the rating, as approximately 70 per cent of the firm's sales in FY08 were indirectly to EU-based brands.

"Fitch also views the slowdown in sales of final garment products in the developed markets and cost increases in input cotton yarn and utilities as key operational constraints for HMGT."