Fitch downgrades AMW Capital Leasing & Finance to ‘BBB –(lka)’; Outlook Negative

AMW-Capital-Leasing

Nov 11, 2020 (LBO) – Fitch Ratings Lanka has downgraded AMW Capital Leasing And Finance PLC’s (AMWCL) National Long-Term Rating to ‘BBB-(lka)’, from ‘BBB(lka)’. The Outlook is Negative.

KEY RATING DRIVERS

The downgrade and Negative Outlook reflect Fitch’s view that AMWCL’s 90% parent, Associated Motorways Private Limited (AMW), has a weaker ability to extend support to AMWCL.

AMWCL’s National Long-Term Rating is driven by Fitch’s expectation that AMW will extend extraordinary support, if needed.

We believe the finance company is strategically important to AMW, which is a large importer of motor vehicles in Sri Lanka. This is based on AMWCL’s role in the group, the common AMW brand and the reputational damage to AMW should AMWCL default. We also see the synergies between the two companies as high, because a large share of AMWCL’s advances are provided to clients to purchase AMW products. AMW set up AMWCL in 2006 with the objective of supporting its core business.

We see AMWCL’s intrinsic credit profile as being weaker than its support-driven rating due to its small franchise and weaker financial profile relative to similarly rated peers.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:

Further weakening of AMW’s credit standing, driven by its weakening performance, could lead Fitch to reassess AMW’s ability to provide support to its subsidiary. A decrease in AMW’s propensity to provide support, likely due to a reduction in AMWCL’s strategic importance or a significant dilution of AMW’s shareholding, would also lead to a reassessment of its propensity to provide support to its subsidiary. The impact of any reduction in support on the rating will be limited to one notch given our assessment of AMWCL’s standalone strength.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:

An improvement in AMW’s ability to provide support would most likely result in an upgrade. However, the deterioration in AMW’s credit profile in the current environment makes such an improvement unlikely in the near term.