Fitch affirms People’s Leasing’s international ratings at ‘B+’/Stable
Wednesday, 18 September 2013 00:00
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Fitch Ratings has affirmed Sri Lanka-based People’s Leasing and Finance Company PLC’s (PLC) Long-Term Issuer Default Rating (IDRs) at ‘B+’. The agency has also affirmed PLC’s National Long-Term Rating at ‘AA-(lka)’. The outlook on the IDRs and National LT Rating is Stable. A full list of PLC’s ratings can be found at the end of this commentary.
Key rating drivers
PLC’s IDRs, National Long-Term Rating, and National Short-Term Rating on its outstanding commercial paper issues reflect Fitch’s view that PLC’s parent, the state-owned and systemically important People’s Bank (PB, AA+(lka)/Stable), has a high propensity but limited ability to provide extraordinary support to PLC if required, because PLC is strategically important to PB and due to other linkages.
These linkages include PB’s majority ownership and board representation, including a common chairman, a common brand and PLC’s association with PB’s franchise. In 2012, PLC accounted for over 10% of PB’s group assets and contributed to over 26% of its post-tax profits. Apart from its own branches, PLC also operates over 125 window offices within PB’s branches.
PB’s limited ability to provide support to PLC stems from its own ‘AA+(lka)’ rating, which is in turn derived from the Government of Sri Lanka’s limited ability to provide support to PB, as reflected in the sovereign rating of ‘BB-’/Stable.
PB is fully owned by and is a key lender to the Government of Sri Lanka. PB is systemically important because it is the second-largest bank in the country with a share of banking system assets and deposits at 18% in 2012.
It is likely that state support will flow to PLC through PB, due to their strong linkages. PLC’s association with the PB brand and therefore with the state, and the consequent reputation risk to the state should PLC fail, also supports Fitch’s view.
The two-notch differential between the National Long-Term ratings of PLC and PB reflect Fitch’s view that timely support from the state may be constrained by regulatory restrictions between the entities (such as maximum exposure limits) or administrative delays usually seen in layered support structures.
PLC’s outstanding senior unsecured redeemable debentures are rated in line with its National Long-Term Rating, because the instruments do not have any going concern- or gone-concern loss-absorbing features, and are therefore expected to be repaid in line with PLC’s other senior creditors in the event of a liquidation.
Rating sensitivities
PLC’s ratings may be downgraded if PB gives up its majority stake in PLC, or if PB’s ability to provide support weakens, or if PLC’s strategic importance to PB diminishes over time.
Fitch does not expect PLC’s standalone credit profile to improve above its Long-Term IDRs, primarily due to higher business and financial risks than companies that are rated higher than PLC. Therefore Fitch does not expect PLC’s ratings to be upgraded, unless PB’s ratings are upgraded.
PLC’s ratings:
Long-Term Foreign-Currency IDR: ‘B+’; Stable Outlook
Long-Term Local-Currency IDR: ‘B+’; Stable Outlook
National Long-Term Rating: ‘AA-(lka)’; Stable Outlook
