Proceeds from the 800 million-rupee notes issue will be used to refinance the firm's 270 million-rupee long-term debt, and fund its existing working capital.

"Hence, the proposed debt issue is not expected to materially change DSIHL's total debt balance," Fitch said.

As at end September 2009, DSIHL's total debt amounted to 2.2 billion rupees, of which about 77 percent comprised of short-term loans and overdrafts.

Of the total 510 million rupee worth of long-term debt, about 270 million was due to mature within a year.

DSIHL's liquidity position is supported by about 370 million rupees of undrawn facilities and 120 million in cash as at September 2009, Fitch said.

"The ratings reflect DSIHL's position as Sri Lanka's largest manufacturer and retailer of footwear, and its strong brand franchise," the agency said.

But the rating agency said DSIHL's ratings are constrained by the financial profile of its parent, D Samson Group, which has a weaker stand-alone financial profile than DSIHL's.

Fitch also said DSIHL's leverage, measured by adjusted net debt/operating EBITDAR, improved to 3.3x in FY09 compared to 3.6x in FY08.

"The improvement in FY09 stemmed from an increase in sales of 12 percent, primarily driven by footwear price increases."

DSIHL's interest coverage, measured by EBITDA/net interest, declined marginally to 1.7x in FY09 from 1.8x in FY08, due to a system wide increase in interest costs.

Fitch said it expects DSIHL to maintain its credit metrics without much deterioration, given the relative stability in basic footwear sales which make up 80 percent of DSIHL's revenues and declining interest rates on borrowings.