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Sri Lanka tea plantations credit under pressure with low prices: Fitch

ECONOMYNEXT – Sri Lanka’s plantations firms which get more than 50 percent of their revenue from tea has seen their credit profile weaken as firms struggle with low prices and deadlocked wage negotiations, Fitch Ratings said.

Low prices have hurt cashflows and firms are struggling with average prices at Colombo’s tea auctions falling to 370 rupees a kilogram in September, the lowest since 2012. Prices are now around 400 rupees a kilo with cost of production estimated at around 450 rupees.

Labour costs, which form about 70 percent of tea plantation companies’ production costs, have risen 25 to 30 percent in recent years, Fitch said.
Leverage calculated as net debt to earnings before interest tax depreciation and amortization (EBITDA), had risen to 9.9 times September 2015 from 2.4 times in 2013.

Fitch said it expected leverage to remain at high levels in the long term because of regular wage increases and low productivity compared with other leading tea exporting countries.

At the moment unions are demanding a 60 percent wage increase and plantations companies want to defer it till next year and are offering a maximum of 10 percent.

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