Fitch rates Singer Finance’s Sub Debt Final ‘A-(lka)’

Fitch Ratings has assigned Singer Finance (Lanka) PLC’s (SFL, A+(lka)/Stable) Sri Lanka rupee-denominated subordinated unsecured debentures a final national long-term rating of ‘A-(lka)’.

The assignment of the final rating follows the receipt of documents conforming to information previously received. The final rating is in line with the expected rating assigned on 22 March 2021.

The debentures will total up to LKR2 billion with a maturity of five years and carry fixed and floating rate coupons. SFL plans to use the proceeds to strengthen its Tier II capital, support its loan-book expansion and for working capital requirements. The debentures are to be listed on the Colombo Stock Exchange.

KEY RATING DRIVERS

The subordinated debentures are rated two notches below SFL’s National Long-Term Rating to reflect their subordination to senior unsecured obligations. Fitch’s baseline notching of two notches for loss severity reflects our expectation of poor recovery. We have not applied additional notching for non-performance risk, as the notes do not have going-concern loss-absorption features, in line with Fitch’s rating criteria.

SFL’s National Long-Term Rating was affirmed on 5 February 2021. The rating reflects Fitch’s expectation that support would be forthcoming from Singer (Sri Lanka) PLC (Singer, AA(lka)/Stable), which owns 80% of SFL and is involved in SFL’s strategic direction through board representation. The two companies also share the common Singer brand. The two-notch differential reflects SFL’s limited role in the group. SFL is engaged in vehicle financing, which is not a major product for Singer. Furthermore, there is limited operational integration between the entities.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

The rating of the proposed notes will move in tandem with SFL’s National Long-Term Rating.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The rating of the proposed notes will move in tandem with SFL’s National Long-Term Rating.
SFL’s ratings are sensitive to changes in Fitch’s assessment of Singer’s ability and propensity to provide support.