Sri Lanka’s DFCC Vardhana Bank’s Debt assigned final ratings: Fitch

debenture_lbo

May 19, 2015 (LBO) – Fitch Ratings Lanka has assigned DFCC Vardhana Bank PLC’s proposed Basel II-compliant senior debentures a final National Long-Term Rating of ‘AA-(lka)’ and proposed Basel II-compliant subordinated debentures a final National Long-Term Rating of ‘A+(lka)’, the rating agency said in a press release.

The Media Release Reproduced Below:-

The final ratings are the same as the expected ratings assigned on 22 April 2015, and this follows the receipt of documents conforming to information already received.

The proposed issuance of senior and subordinated debentures will total LKR5bn, with at least LKR2bn each of senior and subordinated debentures.

The debentures, which will have a tenor of five years and carry fixed coupons, will be listed on the Colombo Stock Exchange. DVB expects to use the proceeds to reduce asset and liability maturity mismatches.

KEY RATING DRIVERS

The proposed senior debentures are rated at the same level as DVB’s National Long-Term Rating in accordance with Fitch’s criteria, as they constitute unsecured and unsubordinated obligations of the bank.

The proposed subordinated debentures are rated one notch below DVB’s National Long-Term Ratings to reflect the subordination to senior unsecured creditors.

Fitch has equalised DVB’s rating with that of its 99% parent DFCC Bank PLC (DFCC; AA-(lka)) as it considers DVB core to DFCC. DVB accounts for 50% of consolidated assets, and the two banks’ operations and management are highly integrated. The ratings capture DFCC’s strong consolidated profitability and capitalisation, which are offset by rapid growth in commercial banking via DVB.

RATING SENSITIVITIES

The rating on the proposed debentures will move in tandem with DVB’s National Long-Term Ratings.
DVB’s ratings will move in tandem with DFCC’s ratings. They are also sensitive to changes in DVB’s strategic importance to DFCC.

The consolidation of DFCC’s franchise and its ability to sustain strong credit metrics could result in an upgrade of DFCC’s ratings. DFCC’s rating could be downgraded if there is a sustained and substantial increase in risk appetite that could significantly weaken its strong capital position.

A full list of ratings is as follows:

National Long-Term Rating: ‘AA-(lka)’, Outlook Stable

Subordinated debentures: ‘A+(lka)’

Proposed subordinated debentures: ‘A+(lka)’

Proposed senior debentures: ‘AA-(lka)’