Fitch maintains Merchant Credit on RWE

Fitch Ratings Lanka said yesterday it has maintained Merchant Credit of Sri Lanka’s (MCSL) ‘BBB(lka)’ National Long-Term rating on Rating Watch Evolving (RWE).

MCSL was placed on RWE in May 2011 following Merchant Bank of Sri Lanka Plc’s announcement in the same month that the Central Bank of Sri Lanka has provided “in principle approval” for the issuance of a specialised banking license to MBSL subject to its amalgamation with MCSL and other entities of the Bank of Ceylon (BoC; AA+(lka)’/Stable) group. MCSL is jointly owned by BoC (49%) and MBSL (51%), whilst BoC owns a 72% stake in MBSL.

The RWE reflects the uncertainty surrounding the final details of the intended merger, the profile of the merged entity, and the resulting shareholding of the state-owned BOC in the merged entity.

Fitch will resolve the RWE once the above details of the merged entity become more definitive. Retention of the merged entity within the BoC group as well as an increase in BoC’s effective shareholding and future linkage with BoC group may lead to a rating upgrade. Conversely, a decrease in BoC’s effective shareholding through, for example, a divestment of the merged entity and disassociation with the BoC franchise may lead to a ratings downgrade.

MCSL’s total assets amounted to Rs. 5,979.9 m at end-December 2011. The company operates via 12 outlets.