Fitch puts Merchant Credit on RWE

Fitch Ratings Lanka is maintaining Merchant Credit of Sri Lanka Ltd’s (MCSL) National Long-Term BBB(lka) rating on Rating Watch Evolving (RWE), pending its merger with Merchant Bank of Sri Lanka Plc (MBSL) and two subsidiaries of Bank of Ceylon (BOC; AA+(lka)/Stable).

The RWE reflects uncertainty surrounding the final details of the intended merger, the profile of the merged entity, and the resulting shareholding of state-owned BOC in the merged entity. BOC directly holds 72 per cent of MBSL and 49 per cent of MCSL. The Watch has been in place since May, when it was announced that the Central bank of Sri Lanka (CBSL) has provided ‘in principal approval’ for the issuance of a specialised banking license to MBSL subject to the amalgamation.

MCSL’s rating reflects its association with its main shareholder, BOC, in terms of its effective shareholding of 86 per cent and representation on MCSL’s board, and may be affected by a change in circumstances that would require a review of the likelihood of support from BOC.

MCSL is a registered finance company (RFC) that accounted for 1.9 per cent of total RFC assets at end-2010. It has a network of 11 branches and is is jointly held by BOC (49 per cent) and MBSL (51 per cent).