Rating Cut

Feb 11, 2012 (LBO) - Sri Lanka's Mercantile Investments Plc, has been downgraded to 'BBB+' from 'A' and its short term rating from P1 to P2 by Ram Ratings Lanka, on weaker asset quality and exposure to stocks. "The downgrade reflects MIL’s weak asset quality as a result of its high exposure to equity investments as well as the deterioration in its core performance," Ram Ratings said.

"On the other hand, MIL’s ratings are upheld by its strong capitalisation, although this is likely to be eroded amid the planned aggressive expansion of credit assets."

The firm had around 200 million rupees of unrealized losses on its equity portfolio. 'BBB+' is still an investment grade rating.

The full rating statement is reproduced below

RAM Ratings Lanka has downgraded Mercantile Investments PLC’s (MIL or the Company) long- and short-term financial institution ratings from A and P1 to BBB+ and P2, respectively. Meanwhile, the outlook on the long-term rating has been revised from negative to stable. Simultaneously, the short-term issue rating of MIL’s LKR 100 million Commercial Paper Issue (2011/2012) is also reaffirmed at P2.

The downgrade reflects MIL’s weak