RAM Ratings said MIL has a long-term credit rating of 'A' and short-term rating of 'P1'. RAM has also confirmed MIL's existing commercial paper of 250 million rupees.
RAM said the rating was supported by MIL's capitalization and liquidity position.
"The assigned rating is at par with MIL’s short-term financial institution rating, as the proposed issuance ranks pari passu with the Company’s other senior unsecured creditors," RAM said.
"However, the outlook on it long-term rating remains negative, as its financial performance and asset quality have stayed soft; the short term rating is however unlikely to change unless there is a drastic deterioration in liquidity and funding."
MIL is the fourth-largest finance company in Sri Lanka, accounting for about six percent of industry assets at the end of the year ending March 2008.
RAM says the industry is concentrated with the two largest firms accounting for more than 50 percent of industry assets.
"In the past few years, the competition in the industry has been intensifying with commercial banks venturing into the leasing sector.
To mitigate the effects of competition to some extent, MIL - like other registered finance companies (“RFCs”) - is expanding its branch network.
The company had two branches as at March 2008, and added two more by June this year.
Historically, MIL has been one of the most profitable RFCs in Sri Lanka, having enjoyed returns on assets (“ROA”) of over six percent.
As interest rates rose, however, the company’s interest expenses also elevated in tandem.
"The improving trend in its asset quality had thus reversed, resulting in a sharp fall in the company’s ROA, which only came up to 2.95 percent as at end-March 2008, down from 4.92 percent in the 2007 financial year."
By end-June 2008, however, MIL’s tightening collections and recoveries began to bear fruit.
The company’s gross non-performing-loan (“NPL”) ratio, though still weaker than the industry average, eased slightly from 7.64 percent as at end-March 2008 to 7.58 percent.
In absolute terms, MIL's gross NPLs contracted from 432.68 million rupees to 417.30 million rupees over the same period.
"Going forward, the management intends to remain focused on recoveries while expanding its loan books, albeit at a conservative pace," RAM Rating said.
MIL also plans to partially mitigate interest-rate risk by tapping public deposits and curtailing short-term, high-interest borrowings.
RAM Ratings said that in line with its improving asset quality, MIL’s liquidity and funding levels have also ameliorated.
The company’s statutory liquidity ratio, which stood at 17.28 percent as at end-March 2008, climbed up to 17.65 percent as at end-June 2008.
Concurrently, its loans-to-deposits ratio eased from 223.38 percent to 203.43 percent over the same span, as a larger share of funding had stemmed from public deposits.
RAM Ratings noted that MIL’s capitalisation is still its key rating driver, with an impressive tier-1 capital-adequacy ratio of 20.83 percent as at end-June 2008.
"RAM Ratings draws confidence from the fact that the company’s robust capitalisation had been build-up primarily by prudent retention of profits."
In addition, the company’s effective recovery efforts have also improved with its ratio of net NPLs to shareholders’ funds falling from 5.60 percent as at end-March 2008 to 3.58 percent as at end-June 2008.
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