Fitch maintains MCSL Financial Services’ rating on watch positive
Wednesday, 31 December 2014 00:25
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Fitch Ratings Lanka has maintained MCSL Financial Services Ltd.’s (MFSL) National Long-Term Rating of ‘BBB(lka)’ on Rating Watch Positive (RWP) as Fitch expects the merger of MFSL, MBSL Savings Bank Ltd. and Merchant Bank of Sri Lanka to be concluded within the first quarter of 2015.
Significant progress has been made since the merger announcement in March 2014, including securing the necessary shareholder approval at the extraordinary general meeting held on 13 October, setting the share swap ratios and adoption of new articles of association. In addition, the surviving entity has been renamed as Merchant Bank of Sri Lanka and Finance PLC (MBSF).
MFSL was placed on RWP after Merchant Bank of Sri Lanka announced its proposed merger with MFSL and another company, all of which are subsidiaries of Bank of Ceylon (BOC: AA+(lka)/Stable).
Key rating drivers
The RWP reflects Fitch’s expectations that MFSL, as part of the surviving entity MBSF, will be of greater importance to the BOC group than MFSL on its own. This is based on BOC continuing to be the dominant shareholder in the merged entity – Fitch expects BOC to directly own 74% of MBSF compared with its current 50.1% direct holding and 80% effective holding in MFSL.
MBSF will operate as a licensed finance company focusing on vehicle financing activities.
Rating sensitivities
The Rating Watch will be resolved on the completion of the merger and on the receipt of final details of BOC’s shareholding in the merged entity, which Fitch expects to be as early as January 2015. The next step in the merger would be the issue of a certificate of amalgamation by the Registrar General of Companies, subsequent to which shares will be issued to the owners of the entities merging to form MBSF.
MFSL’s rating could be upgraded by multiple notches because of the merged entity’s greater importance to BOC as the only licensed finance company within the group. That said, Fitch is likely to maintain a difference of several notches between the ratings on BOC and the merged entity due to the latter’s limited strategic importance to the group.
