Fitch Ratings has assigned Seylan Bank PLC’s (A-(lka)/Stable) proposed senior debenture issue of up to LKR8bn a National Long-Term Rating of ‘A-(lka)(EXP)’.
The debentures will have tenors of three and four years and carry fixed and floating coupons. The debentures are to be listed on the Colombo Stock Exchange, and the bank plans to use the proceeds to fund loan growth, strengthen its funding mix, reduce structural maturity mismatches, and reduce its short-term borrowings.
The final rating is subject to the receipt of final documentation conforming to information already received.
KEY RATING DRIVERS
Seylan Bank’s senior debt is rated at the same level as its National Long-Term Rating, as the debentures rank equally with other senior unsecured obligations.
The National Long-Term Rating of Seylan Bank reflects Fitch’s expectation of state support due to its state shareholding – which came about in the aftermath of the bank’s crisis in December 2008 – and a higher share of banking-sector deposits relative to some peers. Seylan Bank has a lower support-driven rating than its larger peers, due to its smaller market share. Fitch believes Seylan Bank’s standalone financial strength has improved, reaching the same level as it support-driven rating.
Seylan Bank’s senior debt ratings will move in tandem with its National Long-Term Rating.
A downgrade of Seylan Bank’s rating could result from a reassessment of state support and a substantial reversal in recent improvements to its asset quality, together with a weakening financial profile. In the absence of changes to Fitch’s support assessment, an upgrade of Seylan Bank’s rating would be contingent on further improvements in its standalone profile through improved asset quality and provisioning, stemming mainly from recovery of legacy NPLs.
An upgrade would also be contingent upon Seylan Bank maintaining other credit metrics in line with higher-rated peers.