Long term debentures of Sri Lanka’s HNB earn A- domestic rating from Fitch

Mar. 30 (LBO) – Sri Lanka’s Hatton National Bank’s Rs1.22 billion debenture issue, which closes Friday has been privately placed mostly among institutions, with longer tenures running up to 18 years being snapped up by insurance firms, an official said. Fitch Ratings Lanka Thursday assigned a rating of A- (sri) and a stable outlook, for the unsecured subordinated debenture issue, which is one notch below the bank’s A (sri) rating for its senior debt.

“As a listed bank, HNB has to get a rating for its debentures according to the requirement of the Securities and Exchange Commission,” Udul Chandrasena from HNB’s corporate finance department told LBO.

“The ‘A- (sri)’ rating denotes a low expectation of credit risk,” Fitch said.

“The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings.”

The debentures were issued in six classes:


 


Maturity


Coupon  


Amount (LKR
million)


Type A


2012 


Bi-annual,
Floating


262.5


Type B


2013


Bi-annual,
Floating


250.0


Type C


2014


Bi-annual,
Floating


300.0


Type D


2016


Zero Coupon


100.0


Type E


2021


Zero Coupon


107.5


Type F


2024


Zero Coupon


200.0


Total


                
1,220.0

Because Sri Lanka’s banks do not usually issue debt with long tenures they also find it difficult to provide products like housing mortgages or even term loans, without carrying mis-matches in their books.

“This will allow the bank to extend the maturity of its liabilities,” Fitch Analyst Gerard Wickrema said.

HNB is the second largest private commercial bank in Sri Lanka, with assets of Rs174 billion as at December 2005.

“HNB’s financial profile has improved over the last few years supported by two equity infusions (LKR 2.4bn) in 2004 and 2005,” Fitch said.

“The equity infusions represented a 31% increase over HNB’s end Sept. ’04 equity and will support growth and improve loss absorption capacity.”

Fitch added that HNB’s profitability has improved, though it still lags behind its major peers, largely due to higher overheads.

But the bank was addressing the cost problem, and risk management.

Fitch said the bank has made progress in bad loans allowing it to reduce them by 14 percent over the last two years.

-Asantha Sirimanne: asantha@vanguardlk.com