Fitch downgrades DSI Holdings

Fitch Ratings said it downgraded DSI Holdings Ltd.'s national long-term rating to BBB(lka) from BBB+(lka).

The outlook also was revised to stable from negative.

The downgrade reflects a view that the footwear company's net leverage is likely to remain at more than 4.25x in the medium term, Fitch said.

DSI's leverage has been driven higher due to weaker cash flow following the imposition of 12% retail tax in Sri Lanka effective January 2013, the agency said.

The company is the market leader in a fragmented retail industry, targeting a relative price-sensitive segment, Fitch said. The imposition of a retail tax has hurt the group's competitive position, the agency said.

The ratings also consider its market leadership in domestic footwear, supported by its well-known in-house brands, diverse product range and extensive distribution network of more than 200 retail and 90 wholesale points, Fitch said.

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