Sri Lanka’s Sampath Bank to sell Rs5.0bn in debt

Oct 31, 2013 (LBO) – Fitch Ratings said a 3.0 billion rupees subordinated debt offer of Sri Lanka’s Nations Trust Bank has been given an expected ‘A-(lka)’ rating. SB could be downgraded if there is an increase in risk appetite, for instance through aggressive lending or weakening of underwriting standards that can put pressure on its credit profile. Fitch would also consider negative rating action on SB if there is a substantial and sustained decline in asset quality that may exert pressure on its capitalisation.

The subordinated debt rating will move in tandem with the long-term rating.

Sampath Bank has a long term rating of ‘AA-(lka)/stable’.

The full statement is reproduced below:

Fitch Rates Sampath Bank’s Subordinated Debt ‘A+(lka)(EXP)’ Ratings Endorsement Policy

31 Oct 2013 4:10 AM (EDT) Fitch Ratings-Colombo/Singapore-31 October 2013: Fitch Ratings Lanka has assigned Sampath Bank Plc’s (SB; AA-(lka)/Stable) proposed subordinated debentures of up to LKR5bn an expected National Long-Term Rating of ‘A+(lka)(EXP)’.

The debentures are to be listed on the Colombo Stock Exchange. SB expects to use the proceeds to strengthen the bank’s regulatory Tier 2 capital base and reduce asset and liability maturity mismatches.

The final rating is pending final documents that confirm information already received, including details about the amount and tenor.

KEY RATING DRIVERS

The National Rating reflects SB’s expanding domestic franchise and modest financial profile.

The proposed debentures are rated one notch below SB’s National Long-Term Rating to reflect their gone-concern loss-absorption quality in the event of a liquidation, in line with Fitch’s criteria for rating such securities. The proposed debentures’ expected rating is the same as the rating on the bank’s outstanding subordinated debentures.

RATING SENSITIVITIES

SB’s ability to establish and sustain an enhanced franchise alongside credit metrics commensurate with higher-rated domestic peers could result in an upgrade. However, this is less likely over the medium term, given SB’s higher risk profile relative to higher-rated peers and challenging economic conditions.