Finance Rating

May 26, 2011 (LBO) - Sri Lanka's Multi Finance Company Limited (MFCL) has been rated 'B+(lka)', four notches below investment grade, by Fitch with a 'stable' outlook. "MFCL's rating reflects its small size, weak franchise, modest capitalisation and low profitability in its core business," Fitch Ratings said in a statement.

"The rating factors in the company's rapid loan growth since its takeover by Entrust Limited in March 2008, and the resulting improved product diversity.

"The rating may face downward pressure if there is a significant structural change in MFCL's balance sheet, which could impede future profitability."

A sustained weakening of the firm capitalization or liquidity could be negative for ratings, but an increase in the firm's operations without a significant compromise on asset quality as well an improvement in profits could result in an upgrade.

Fitch said if the firm is merged with Standard Credit Lanka Ltd, a finance company that Multi Finance's parent is managing, could alter its balance sheet. Standard Credit was a part of the Ceylinco group.

Standard Credit was being re-structured. Entrust's management intended to merge

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