Fitch Ratings has assigned National Development Bank PLC's (NDB, A-(lka)/Stable) proposed Sri Lankan rupee-denominated Basel III-compliant subordinated debentures of up to LKR5 billion a final National Long-
Term Rating of 'BBB(lka)'.
The final rating is the same as the expected rating assigned on 1 September 2023 and follows the receipt of documents conforming to information already received. This is with the exception of the reduction in the size of the issuance to LKR5 billion, from LKR10 billion under the draft documentation.
The proposed debentures will mature in five years and will be listed on the Colombo Stock Exchange. NDB plans to use the proceeds to strengthen its Tier 2 capital base and to support its loan growth.
The bank expects the proposed debentures to qualify as Basel III-compliant regulatory Tier 2 capital.
The debentures include a non-viability clause whereby they convert to ordinary voting shares upon the occurrence of a trigger event, as
determined by the Monetary Board of Sri Lanka.
KEY RATING DRIVERS
NDB's Sri Lankan rupee-denominated subordinated debt is rated two notches below the bank's National Long-Term Rating anchor. This reflects Fitch's baseline notching for loss severity for this type of debt and expectation of poor recoveries. There is no additional notching for non-performance risk, as the notes do not incorporate going-concern loss-
NDB's National Long-Term Rating is used as the anchor rating for this instrument because it reflects the bank's standalone financial strength and best indicates the risk of the bank becoming non-viable.
Fitch affirmed NDB's National Long-Term Rating, removed the Rating Watch Negative and assigned a Stable Outlook on 5 October 2023; see "Fitch Affirms Ratings on 15 Sri Lankan Banks; Removes Watch Negative; CBL on Negative Outlook".
Factors that Could, Individually or Collectively, Lead to Negative Rating
Action/Downgrade NDB's subordinated debt would be downgraded if the bank's National Long-Term Rating is downgraded.
Factors that Could, Individually or Collectively, Lead to Positive Rating
Action/Upgrade NDB's subordinated debt would be upgraded if the bank's National Long-Term Rating is upgraded.