Friday, 29 November 2013 00:01
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Fitch Ratings has assigned MCSL Financial Services Ltd.’s (BBB(lka)/Stable) proposed subordinated redeemable debentures of up to Rs. 500 m an expected National Long-Term Rating of ‘BBB-(lka)(EXP)’.
The issue is expected to have a tenor of five years, with fixed-rate coupon payments. The debentures are to be listed on the Colombo Stock Exchange. MFSL expects to use the proceeds to strengthen its regulatory Tier 2 capital to support the expansion of asset base, minimise the maturity mismatch in assets and liabilities, and fund growth.
The final rating is contingent on receipt of final documentation conforming to information already received.
Key rating drivers
Fitch has anchored the issue rating on MFSL’s National Long-Term Rating to reflect the agency’s view that support from parent Bank of Ceylon (BOC, AA+(lka)/Stable) will be available to the subordinated obligations. BOC effectively owns 80% of MFSL, has representation on the subsidiary’s board, and is associated with its franchise. BOC has also extended a credit line to MFSL.
The issue rating has been notched down one level from MFSL’s National Long-Term Rating to reflect the notes’ below-average recovery expectations in the event of liquidation given their subordination to senior unsecured instruments, in line with Fitch’s criteria for rating such securities.
Rating sensitivities
The subordinated debt rating will move in tandem with MFSL’s rating.
MFSL’s National Long-Term Rating could be revised in the event of a change in the willingness and/or ability of BOC to support the company. This would include any significant changes in BOC’s effective shareholding or board control.
In line with its criteria ‘Rating FI subsidiaries and Holding Companies’ Fitch classified MCSL as being of limited importance to BOC due to a lack of strategic rationale to the group, negligible profit and asset contribution, and absence of operational integration.
