Sri Lanka’s Hela Clothing delays investments, settles debt in soft-peg collapse
ECONOMYNEXT – Sri Lanka’s Hela Clothing, an apparel exporter said it had delayed investments and will use about 1.5 billion rupees from an initial public offer to settle debt, as the island’s soft-peg with the US dollar collapsed after two years of money printed to keep interest rates down.
Hela Clothing raised 4.0 billion rupees in the IPO to and planned to invest 999 million rupees in a fabric mill to boost productivity by the second quarter of the current financial year.
“The Company is facing delays in finalizing the target investment due to the prevailing economic environment in Sri Lanka,” the apparel exporter said stock exchange filing.
The projects will be done after the second quarter “provided conditions are favourable ” at the time.
The company had spent 95 million rupees out of the 596 million rupees allocated for a Enterprise Resource Planning (ERP) software.
Out of 2.4 billion allocated to be invested in subsidiaries on 1.9 billion rupees were spent.
The planned investments were linked to dollar costs.
Sri Lanka’s rupee fell from 200 to 380 to the US dollar after a yet to be successful float and forex shortages are persisting, making it difficult to make imports.
The steep depreciation of the rupee was reducing the real value of the rupee proceeds of the IPO.
About 2.0 billion rupees was left from the IPO.
“In order to avoid the impact of further depreciation in the currency on the remaining funds allocated to these objectives relative to the Company’s US Dollar-denominated investment requirements and borrowings, it therefore wishes to immediately divert them to equity investments into its subsidiaries for the purpose of settling additional debt under,” Hela Clothing said.
“This includes Sri Lankan Rupee-denominated debt and US Dollar-denominated debt, which will be settled by using the funds to finance local operating expenses and diverting a portion of US dollar export proceeds to debt settlement.”
Sri Lanka’s interest rates have now corrected and lending rates have topped 20 percent. (Colombo/May28/2022)
