Small chemical importers face higher cash-flow risks under new Sri Lanka rules

Sri Lankan small-scale chemical importers and blenders that mainly purchase stocks in foreign currency while relying on short-term credit are facing greater compliance and cash-flow risks under new import payment monitoring rules introduced in June 2026, according to a SenFin Securities report examining the impact of recent chemical import regulations on companies listed on the Colombo Stock Exchange (CSE).

The report examined the impact of Regulations No. 06 of 2026, issued under Gazette Extraordinary 2493/39 and effective from June 19, 2026.

It said businesses with high import volumes, low margins and short-term credit exposure are likely to feel the impact most because their inventories depend heavily on short-term financing, while exporters and companies with stronger cash positions are expected to be less affected.

Five CSE-listed companies were identified in the report’s higher-risk category based on its comparative exposure matrix: Lankem Ceylon PLC (LCEY), Chemanex PLC (CHMX), Union Chemicals Lanka PLC (UCAR), Chevron Lubricants Lanka PLC (LLUB) and AgStar PLC (AGST).

According to the report, smaller importers and blenders with limited pricing power are particularly exposed because they purchase inventory in foreign currency and finance those purchases through short-term credit.

The new payment monitoring requirements can therefore directly affect their working-capital cycles.

The report said diversified groups in which chemical-related operations account for only one part of the overall business are likely to be better positioned to absorb the additional compliance requirements.

Existing compliance teams, established banking relationships and available buffer stocks could help such companies manage the additional administrative burden without putting the same pressure on margins.

CIC Holdings PLC and Hemas Holdings PLC were cited as examples of diversified companies whose agri-inputs and cosmetics businesses could be exposed to the regulatory changes.

However, the report said earnings from their other business segments could help cushion any noticeable impact on overall group performance.

Hayleys PLC (HAYL) and its subsidiary Haycarb PLC (HAYC) were placed among the least exposed companies in the assessment because of their diversified operations and foreign-exchange positions.

The report described Hayleys as the most diversified company among those reviewed, noting that its export earnings provide a natural offset against its foreign-currency import payments.

As a result, any impact from the new regime would be more likely to be felt at the affected business-unit level rather than across the group as a whole.

Haycarb, meanwhile, has a different exposure because it exports activated carbon and therefore generates foreign-currency earnings rather than primarily using foreign currency for imports.

The report said this position could work in the company’s favour under tighter foreign-exchange payment requirements.

The report also highlighted the potential impact of the hydrochlorofluorocarbons (HCFC) ban introduced under the Imports and Exports (Control) Regulations No. 04 of 2026.

It said the phase-out of HCFCs could increase demand for Haycarb’s filtration carbon, which is used in substitute refrigerant and solvent systems that companies are expected to adopt as they move away from HCFC-based systems.

As a result, SenFin Securities classified Haycarb as a “relative beneficiary” of the regulatory changes.

It noted that Haycarb was the least import-exposed company among the nine companies reviewed and could also benefit from additional demand for its activated carbon products as the HCFC phase-out progresses.