Fitch rates Sri Lanka’s Singer Finance’s Proposed Senior Debt ‘BBB (lka)(EXP)’

Feb 19, 2015 (LBO) – Fitch Ratings has assigned Singer Finance PLC’s proposed listed senior secured debentures of up to 1.5 billion rupees an Expected National Long-Term rating of ‘BBB (lka) (EXP)’, the rating agency said in a statement.

The proposed issuance is expected to have a tenor of five years with a fixed-rate coupon which will be used to fund lending growth, lengthen maturities of its liabilities, and reduce structural maturity mismatches.
The full statement is reproduced below:-

The debenture is secured by a primary mortgage over receivables from identified hire-purchase and lease agreements exceeding 110%of the total outstanding value of the debenture at any given time.
Being a secured debenture, SFL will be omitted from the enhanced statutory liquid assets requirement.

This is in contrast to unsecured borrowings for which SFL will need to post a 10% minimum reserve with the central bank if not included in the company’s capital funds.

Fitch will assign a final rating to the issue subject to the receipt of final transaction documents conforming to information already received.

KEY RATING DRIVERS

The issue has been rated at the same level as SFL’s National Long-Term rating. Fitch has not provided any rating uplift for the collateralisation as the secured notes’ recovery prospects are considered to be average and comparable with those of the unsecured notes in a developing legal system.

SFL’s rating reflects Fitch’s view that support would be forthcoming from its parent, Singer (Sri Lanka) PLC (SSLP; ‘A-(lka)’/Stable) if needed, given its strategic importance to SSLP. This view is premised on: the common Singer brand; SSLP’s majority shareholding; board representation; the financing by SFL of some of SSLP’s products; and demonstration past support in the form of equity injection and borrowings.

SFL’s National Long-Term Rating is underpinned by its standalone credit profile which reflects better capitalisation levels, modest profitability and satisfactory asset-quality when compared with similarly rated domestic peers.

RATING SENSITIVITIES

Any changes to SFL’s National Long-Term rating would impact the issue’s rating. As such, the issue rating is sensitive to changes to Fitch’s view on SSLP’s ability and propensity to provide support to SFL. A weakening in SFL’s intrinsic strength would only trigger a downgrade of its National Long-Term rating if Fitch’s support assessment were to change at the same time.

Fitch believes that an upgrade for SFL would most likely result from a significant increase in SFL’s strategic importance to SSLP. The development of SFL’s franchise, while maintaining its financial profile relative to higher-rated peers, could also lead to a positive rating action.