Fitch revises Sampath Leasing and Factoring’s outlook to stable; affirms ‘A’

Fitch Ratings Lanka has revised Sampath Leasing and Factoring Ltd’s (SLFL) Outlook to Stable from Positive while affirming its National Long-Term rating at ‘A(lka)’. The agency has also affirmed SLFL’s outstanding senior unsecured redeemable debentures at National Long-Term ‘A(lka)’.

The rating action follows the revision of Sampath Bank PLC’s (SB, ‘AA-(lka)’/Stable, 100% ownership of SLFL) rating Outlook to Stable from Positive on 23 August 2012 (please refer to the rating action commentary available at www.fitchratings.com and www.fitchratings.lk).

SLFL’s rating reflects Fitch’s expectation of continuous support from SB, given the strong strategic and operational linkages between the two entities. The agency notes that the ratings of the two entities will move in tandem, so long as the linkages between them remain unchanged.

Six out of SLFL’s eight board seats are held by the current or former senior SB officials and directors, including the bank’s CEO on an ex-officio basis. The board is also advised by SB’s current CFO. SB guaranteed or directly lent nearly all of SLFL’s borrowings at end-2011 (FYE11).

SLFL also benefits from business referrals from SB’s extensive branch network, and has a growing number of window offices within the latter’s branches. In 2011, SLFL accounted for 65% of SB’s consolidated net lease portfolio growth.

A rating downgrade may result from a material weakening of SLFL’s linkages with SB, such as a substantial dilution in ownership or reduced operational integration. Conversely, a significant increase in SLFL’s strategic importance to the SB group as measured by its contribution to the group’s profits or closer operational integration could result in a rating upgrade.

SLFL is a specialised leasing company, licensed and regulated by the Central Bank of Sri Lanka. It was established in 2005 as a wholly owned subsidiary of SB, to service the lower end of the SME/retail customer segment. At end-June 2012, SLFL’s assets amounted to Rs. 5 b (2% of SB’s group assets) and post-tax profits stood at Rs. 97 m (3% of SB’s group profits).