S & P said the conversion and merger which would expand finance leased assets will also increase its regulatory capital charge as the risk weight for finance leases were higher than leased assets.
It's Tier I capital ratio would decline from 25.4 percent in September 2012 to 20 percent.
"The risk weight applied on finance leases, which form about 50 percent of the company's loan book, is double for LFCs," Standard and Poor's said.
"The treatment of investments in unconsolidated subsidiaries in the calculation of Tier 1 capital is also different.
"Nevertheless, the rating on PLF will not be affected because our capital assessment is based on our view of the risk in various asset classes.
"Moreover, we assess the company on a consolidated basis; hence, its merger with its subsidiary does not affect the rating."Peoples Leasing, a unit of Sri Lanka's state-run People's Bank is the country's largest leasing company at present.