People’s Leasing goes for Rs. 3 b debenture issue; Fitch rates Senior Debt ‘AA- (EXP)’
Monday, 18 August 2014 00:02
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Fitch Ratings has assigned People’s Leasing & Finance PLC’s (PLC, B+/AA-(lka)/Stable) proposed senior unsecured debentures of up to Rs. 3bn an expected National Long-Term ‘AA-(lka)(EXP)’ rating.
The final rating is contingent on the receipt of the final documents conforming to information already received.
A full rating breakdown is provided at the end of this commentary.
The issue is expected to have tenors of three and four years with fixed-rate coupon payments. PLC expects to use the proceeds for working capital purposes.
The proposed debenture is rated in line with PLC’s National Long-Term Rating of ‘AA-(lka)’, given that the issue is expected to rank equally with the company’s senior unsecured creditors.
KEY RATING DRIVERS - NATIONAL RATINGS AND DEBT
PLC’s National Long-Term Rating reflects Fitch’s view that PLC’s parent, the state-owned and systemically important People’s Bank (PB, AA+(lka)/Stable), has a high propensity but limited ability to provide extraordinary support to PLC if required, because PLC is strategically important to PB and due to other linkages.
These linkages include PB’s majority ownership and board representation, a common brand and PLC’s association with PB’s franchise. In 2013, PLC accounted for over 11% of PB’s group assets, and contributed to over 25% of its post-tax profits. Apart from its own branches, PLC also operates 109 window offices within PB’s branches.
It is likely that state support will flow to PLC through PB, due to their strong linkages. PLC’s association with the PB brand and therefore with the state, and the consequent reputational risk to the state should PLC fail, also supports Fitch’s view.
PB’s limited ability to provide support to PLC stems from its own ‘AA+(lka)’ rating, which is in turn derived from the government of Sri Lanka’s (BB-/Stable) high propensity but moderate ability to provide support to the bank under extraordinary situations.
The two-notch differential between the National Long-Term ratings of PLC and PB reflect Fitch’s view that timely support from the state may be constrained by regulatory restrictions between the entities (such as maximum exposure limits) or administrative delays usually seen in layered support structures.
PLC’s outstanding senior unsecured redeemable debentures are rated in line with its National Long-Term Rating, because the instruments do not have any going concern- or gone-concern loss-absorbing features, and are therefore expected to be repaid in line with PLC’s other senior creditors in the event of a liquidation.
RATING SENSITIVITIES - NATIONAL RATINGS AND DEBT
PLC’s ratings may be downgraded if PB gives up its majority stake in PLC, or if PB’s ability to provide support weakens, or if PLC’s strategic importance to PB diminishes over time.
A full list of PLC’s ratings:
Long-Term Foreign-Currency IDR: ‘B+’; Stable Outlook Long-Term Local-Currency IDR: ‘B+’; Stable Outlook National Long-Term Rating: ‘AA-(lka)’; Stable Outlook Outstanding Senior unsecured debentures: ‘AA-(lka)’
Proposed Senior unsecured debentures: ‘AA-(lka)(EXP)’
National short-term commercial paper rating: ‘F1+(lka)’
