Fitch affirms Central Finance; Rates CP ‘F1’

Fitch Ratings Lanka has affirmed Central Finance Company Plc’s (CF) National Long-Term rating at ‘A+(lka)’ and its sub-ordinate debt rating at ‘A(lka)’.

The Outlook is Stable. Simultaneously, Fitch has assigned a National Short-term rating of ‘F1(lka)’ to CF’s proposed Rs. 500 million commercial paper (CP) issuance. CF retains the option of issuing up to Rs. 1.0 billion in the event of oversubscription.

CF’s rating factors in its relatively good financial profile in the Registered Finance Company (RFC) sector in Sri Lanka. The rating also takes into account CF’s lack of product and funding diversity in relation to banks (an inherent limitation of the RFC business model).

An upgrade of CF’s rating is contingent upon increased diversity of its funding sources and access to capital markets commensurate to ‘AA(lka)’-rated peers, as well as upon strengthening of its core business franchise, while sustaining healthy asset quality and profitability. Conversely, a downgrade may occur if there is a sustained weakening of CF’s asset quality or profitability.

The National Short-Term rating of CF’s proposed commercial papers reflects its reasonably sound funding and liquidity profile underpinned by its conservative management of interest rate mismatches, as well as its access to reliable bank credit facilities.

Fitch notes the availability of unutilised committed facilities for 5.4x the principal outstanding of the proposed commercial paper issuances. The ‘F1(lka) rating is linked to CF’s National Long-term rating of ‘A+(lka)’/Stable, and would be affected by changes to the latter.

CF’s internal capital generation remains strong, with equity/assets at 23.6% at H112 (FYE11: 24.0%). Its profitability and capitalisation ratios were at the higher end of the sector. CF was established as a private company in 1957, and listed on the Colombo Stock Exchange in 1969.

An Employees Share Option Plan holds 17.4% of its shares and 21.9% are held by the Wijenaike family. CF’s asset base was LKR44bn at H112, with a network of 57 branches.

A National Short-term rating of ‘F1(lka)’ indicates the strongest capacity for timely payment of financial commitments relative to other issuers or issues in the same country. Under the agency’s National rating scale, this rating is assigned to the lowest default risk relative to all others in the same country. Where the liquidity profile is particularly strong, a “+” is added to the assigned rating.

CF has a 1.79% equity stake in Fitch Ratings Lanka Ltd. No shareholder other than Fitch, Inc. is involved in the day-to-day rating operations of, or credit reviews undertaken by, Fitch Ratings Lanka Ltd.