Fitch Rates Merchant Bank of Sri Lanka’s Proposed Subordinated Debt ‘BBB+(EXP)(lka)’
Fitch Ratings has assigned Merchant Bank of Sri Lanka & Finance PLC’s (MBSL, A(lka)/Stable) proposed Sri Lankan rupee-denominated subordinated listed debentures of up to LKR1 billion an expected National Long-Term Rating of ‘BBB+(EXP)(lka)’.
The proposed debentures will mature in five years and will be listed on the Colombo Stock Exchange. The company plans to use the proceeds to comply with regulatory capital adequacy requirements.
The final rating is subject to the receipt of final documentation conforming to information already received.
Key Rating Drivers
The proposed debentures are rated two notches below MBSL’s National Long-Term Rating. This reflects our baseline notching for loss severity for this debt class and our expectation of poor recoveries in the event of default.
We applied our Bank Rating Criteria to rate the proposed debentures, as we believe the prudential capital framework of Sri Lankan finance companies is closer to that of banks. There is no additional notching for non-performance risk, as the proposed debentures do not contain going-concern loss-absorption features.
MBSL’s National Long-Term Rating is driven by Fitch’s expectation of extraordinary shareholder support from its parent, Bank of Ceylon (BOC, AA-(lka)/Stable). This view is based on BOC group’s 84.4% stake, history of equity support, control over MBSL’s policies and strategies through board representation, and links with MBSL. Please refer to our commentary, Fitch Upgrades 10 Sri Lankan NBFIs’ Ratings, Affirms 8 Following National Scale Recalibration, published on 24 January 2025 for details on MBSL’s key rating drivers.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
A downgrade of MBSL’s National Long-Term Rating would lead to a downgrade of the expected subordinated debt rating.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
An upgrade of MBSL’s National Long-Term Rating would lead to an upgrade of the expected subordinated debt rating.
Date of Relevant Committee
10 March 2025
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
MBSL’s rating is linked to BOC’s National Long-Term Rating.
