Sri Lanka’s NDB proposed bonds rated ‘B+(EXP) by Fitch

Sept 24, 2013 (LBO) – A proposed bond by Sri Lanka’s National Development Bank has been given an expected ‘B+ (EXP)’ rating by Fitch. National Long-Term Rating AA-(lka)’; Stable Outlook

Outstanding Subordinated debentures ‘A+(lka)’ The rating agency said NDB had a satisfactory track record as a project financing institution with historically stronger capitalization asset quality and profitability compared other major financial institutions.

But there were potential risks in recent aggressive loan growth and expansion into other commercial lending as it sought to become a full-service universal bank.

NDB is expected to sell a 250 million US dollar bond in international markets.

The full statement is reproduced below:-

Fitch Assigns Sri Lanka’s National Development Bank’s Senior Notes ‘B+(EXP)’ Fitch Ratings-Colombo/Singapore-23 September 2013: Fitch Ratings has assigned Sri Lanka-based National Development Bank PLC’s (NDB) proposed issue of USD-denominated notes an expected rating of ‘B+(EXP)’.

The final rating is contingent upon receipt of final documents conforming to information already received.

KEY RATING DRIVERS

The notes are rated at the same level as NDB’s Long-Term Foreign Currency Issuer Default Rating (IDR) of ‘B+’ as they constitute unsecured and unsubordinated obligations of the issuer.

In line with Fitch’s criteria, Recovery Ratings are assigned to entities with an IDR of ‘B+’ or below. Consequently, Fitch has assigned a Recovery Rating of ‘RR4’ to the notes to reflect average recovery prospects.

NDB’s Long-Term IDR reflects its standalone risk profile and satisfactory track record as a project financing institution with historically stronger capitalisation, asset quality and profitability compared with other major financial institutions in Sri Lanka. However, these strengths are counterbalanced by potential risks from NDB’s aggressive loan growth in recent years and its expansion into other areas of commercial lending as it seeks to become a full-service universal bank.

RATING SENSITIVITIES

Any change in NDB’s IDRs would impact the rating of the proposed USD notes.

Full list of NDB’s ratings:

Long-Term Foreign and Local-Currency IDRs ‘B+’; Stable Outlook

Proposed USD senior unsecured notes assigned ‘B+(exp)’ ;Recovery Rating assigned ‘RR4’

Short-term Foreign Currency IDR ‘B’

Viability rating ‘b+’

Support Rating ‘4’

Support Rating Floor ‘B’