May 22, 2014 (LBO) – Fitch Ratings has downgraded Sri Lanka’s Singer Finance Lanka Plc’s (SFL) rating by one level to ‘BBB(lka)’ with a ‘stable’ outlook following a cut in the rating of its parent, Singer Sri Lanka Plc. RATING SENSITIVITIES- NATIONAL RATINGS AND SENIOR DEBT
A weakening in SFL’s intrinsic strength would only trigger a downgrade of its National Long-Term rating if Singer’s National Long-Term rating or its propensity to support were to weaken. Sustained deterioration in SFL’s capitalisation and asset quality relative to its similarly rated peers would result in a weakening of SFL’s standalone credit profile.
Fitch believes that the possibility for an upgrade of the rating would, while not foreseen over the short-term, most likely result from a significant increase in SFL’s strategic importance to Singer. One indication for this could be closer strategic alignment between the two entities resulting in consistently and sustainably higher financing for Singer’s customers.
Any changes to SFL’s National Long-Term rating would impact the issues’ National Long-Term rating. “It reflects Singer’s decreased ability to support SFL,” the rating agency said. “Fitch continues to view SFL as a strategically important subsidiary to Singer and maintains a two-notch rating differential.”
SFL finances customer of Singer Sri Lanka, a consumer durables retailer. The parent has supported the firm in the past.
‘BBB’ is an investment grade rating.
The full statement is reproduced below:-
Fitch Downgrades Singer Finance’s National Rating to ‘BBB(lka)’
Fitch Ratings-Colombo/Hong Kong-21 May 2014: Fitch Ratings Lanka has downgraded Singer Finance (Lanka) PLC’s (SFL) National Long-Term rating to ‘BBB(lka)’ from ‘BBB+(lka)’. The Outlook is Stable. The agency has also downgraded the National Long-Term rating on SFL’s outstanding senior debentures to ‘BBB(lka)’ from ‘BBB+(lka)’ .
The downgrade of SFL’s rating follows the downgrade of its parent Singer (Sri Lanka) PLC’s (Singer) National Long-Term rating to ‘A-(lka)’ from ‘A(lka)’ on 19 May 2014. It reflects Singer’s decreased ability to support SFL. Fitch continues to view SFL as a strategically important subsidiary to Singer and maintains a two-notch rating differential.
KEY RATING DRIVERS – NATIONAL RATINGS AND SENIOR DEBT
Fitch’s expectation that Singer will support SFL is based on its strategic importance to the parent. SFL provides financing for customers of Singer’s consumer electronic store. In addition, the two companies share a common brand, Singer has majority shareholding in SFL and the parent has board representation in the subsidiary. Singer has demonstrated support in the past in the form of equity injection and borrowings and Fitch believes that having common creditors provides an incentive for Singer to support SFL to avoid potential reputational repercussions.
Following the downgrade, SFL’s rating also reflects its standalone credit profile, which Fitch has assessed to be at the same rating level. SFL’s standalone credit profile reflects better capitalisation levels, modest profitability and satisfactory asset-quality when compared with similarly rated domestic peers.
The debentures are rated at the same level as SFL’s National Long-Term rating of ‘BBB(lka)’, as they constitute direct, unconditional, unsecured and unsubordinated obligations of the company.