Sri Lanka People’s Leasing debenture rated ‘AA-(lka)(EXP)’: Fitch

Mar 08, 2013 (LBO) – An upcoming debenture of Sri Lanka’s People’s Leasing and Finance has been rated ‘AA-(lka)(EXP)’ by Fitch. The proposed has been rated at the same level as PLC’s national long term rating as it will rank equal to senior unsecured creditors, Fitch said.

The full statement is reproduced below:

Fitch Rates People’s Leasing’s Proposed Senior Debt ‘AA-(lka)(EXP)’ Ratings

05 Mar 2013 4:36 AM (EST) Fitch Ratings-Colombo/Seoul/Singapore-05 March 2013: Fitch Ratings has assigned People’s Leasing & Finance PLC’s (PLC, B+/AA-(lka)/Stable) proposed listed senior unsecured redeemable debentures of up to LKR6bn an expected National Long-Term ‘AA-(lka)(EXP)’ rating.

The agency will assign a final rating to the issue subject to the receipt of final transaction documents which conform to information already received.

The issue is expected to have a tenor of between four- to five years, with fixed-rate coupon payments. PLC expects to utilize the issue proceeds to fund its balance-sheet growth. The issue will help improve the company’s liquidity position, and reduce its interest-rate risk.

Rating Action Rationale

The proposed debenture is rated in line with PLC’s National Long-term Rating of ‘AA-(lka)’, given that the issue is expected to rank pari passu with the company’s senior unsecured creditors.

Rating Drivers and Sensitivities

PLC’s ratings reflect the capacity and willingness of its state-owned parent People’s Bank (PB, AA+(lka)/Stable, 75% ownership) to extend extraordinary support to PLC in times of distress. This is in turn driven by PLC’s strong association with PB’s brand and its strategic importance to PB.

PB’s capacity to support PLC is in turn derived from the financial capacity and propensity of the government of Sri Lanka (BB-/Stable), given the bank’s increasing role in Sri Lanka’s post-war economic development and its high systemic importance (18% of system assets and deposits in 2011). Fitch believes it is highly likely for government support to flow through to PLC via PB due to the reasons mentioned above as well as the potential reputation risk to the government should PLC default on its financial obligations.

The two-notch differential between the National Long-Term ratings of PLC and PB reflect potential administrative difficulties and regulatory restrictions (such as maximum single party exposures) that exist between the companies which could impede the flow of government support to PLC. Such impediments are usually observed in layered support structures.

A change to PB’s rating may result in a corresponding change to PLC’s ratings, provided that the linkage between PB and PLC remain intact. PLC’s ratings may be downgraded if PB gives up its controlling stake, or if PLC’s strategic importance to PB diminishes over time.