BOC goes for Rs. 6 b listed debentures; Fitch gives AA rating

Fitch Ratings Lanka has assigned Bank of Ceylon’s (BOC; ‘BB-’/Stable) proposed subordinated debentures of up to Rs. 6 billion a National Long-Term rating of ‘AA(lka)’.

BOC’s ratings reflect Fitch’s expectation of support from the Government of Sri Lanka (‘BB-’/Stable), if required. This is based on its quasi sovereign status, high systemic importance and role as one of the main bankers to the Government.

BOC is the largest bank in Sri Lanka and fully owned by the Government. The Viability ‘b+’ Rating (VR) reflects BOC’s weak capitalisation, improving profitability, increasing loan/deposit ratio and concentration in the public sector. The VR also reflects its domestic franchise being underpinned by its sovereign linkages and extensive branch network.BOC...

Any change in Sri Lanka’s sovereign ratings would likely be reflected in the ratings of BOC. An upgrade of BOC’s National Long-Term rating may also result from demonstrated preferential support for BOC.  The VR may be upgraded if BOC enhances its capital buffer substantially (including a high loan loss reserve coverage); if the loan-deposit ratio is maintained at 80%-85%, supplemented by medium-term wholesale funding; and if its operating performance and asset quality remain stable.

The VR may be downgraded if capital buffer weakens from continued high asset growth, or if a large asset quality downturn from domestic/external macroeconomic shocks leads to capital impairment.

The proposed debentures are rated one notch below BOC’s National Long-Term rating to reflect their subordinated status. The proposed debentures will have a maturity of five years, with principal repayment as a bullet payment on maturity while coupon payments will be at fixed or floating rates, and do not contain any deferral clauses.

The debentures are to be listed on the Colombo Stock Exchange. The issue is aimed at strengthening BOC’s Tier 2 capital base.