Sri Lanka’s Fitch rates DFCC Vardhana debentures

Apr 23, 2015 (LBO) – Sri Lanka’s Fitch Ratings has assigned DFCC Vardhana Bank’s proposed Basel II-compliant senior debentures of up to 3 billion rupees an expected national long-term rating of ‘AA-(lka)(EXP)’.

The proposed Basel II-compliant subordinated debentures of up to 2 billion rupees has assigned an expected national long-term rating of ‘A+(lka)(EXP)’.

The debentures, which will have a tenor of five years and carry fixed coupons, will be listed on the Colombo Stock Exchange.

The bank expects to use the proceeds to reduce asset and liability maturity mismatches.

The final rating is subject to the receipt of final documentation conforming to information already received, issuing a statement Fitch Ratings said.

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 equalized 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 capitalization, 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. In addition they are also sensitive to changes in DVB’s strategic importance to DFCC.

The consolidation of DFCC’s franchise alongside 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 materially weaken its strong capital position.

A full list of ratings is as follows: DVB:
National Long-Term Rating: ‘AA-(lka)’, Outlook Stable
Subordinated debentures: ‘A+(lka)’
Proposed subordinated debentures: ‘A+(lka)(EXP)’
Proposed senior debentures: ‘AA-(lka)(EXP)’