People’s Leasing goes for Rs. 500 m Commercial Paper; Fitch assigns good rating

Fitch Ratings Lanka has assigned People’s Leasing Company PLC’s (PLC, ‘AA-(lka)’/Stable) proposed commercial paper issue of up to LKR500m a National Short-Term ‘F1+(lka)’ rating.

The proposed notes will have a tenure of one year, and will be used to finance the company’s working capital requirements.

The rating reflects the potential extraordinary support from the government (‘BB-’/Stable) through PLC’s State-owned parent, People’s Bank (PB; ‘AA+(lka)’/Stable), in times of distress. PB owns 75% of PLC. This is based on the strong linkages between PLC and PB, the subsidiary’s strategic importance to PB, as well as the consequent reputation risk to the government if PLC were to default on its financial obligations.

PB’s capacity to support PLC is derived from the financial capacity and propensity of the government of Sri Lanka, given the bank’s increasing role in Sri Lanka’s post-war economic development and its high systemic importance (18% of system assets and deposits in 2011).

PLC is the largest non-bank financial institution in Sri Lanka by advances, with a 21% share of the market at end-2011. At end-June 2012, its total assets and post-tax profits stood at Rs. 96 b and Rs. 720 m. respectively.