BOC to raise Rs. 8 b; Fitch rates subordinated debentures ‘AA (EXP)’

Fitch Ratings Lanka has assigned Bank of Ceylon’s (BOC; AA+(lka)/Stable) proposed Basel II-compliant subordinated debentures of up to Rs. 8 b an expected National Long-Term Rating of ‘AA(lka)(EXP)’.

The proposed issuance, which will have tenors of five and eight years and carry fixed and floating coupons, will be listed on the Colombo Stock Exchange. 

BOC expects to use the proceeds to strengthen its Tier 2 capital base and reduce asset and liability maturity mismatches.

The final rating is subject to the receipt of final documentation conforming to information already received.

Key rating drivers: The proposed subordinated debentures are rated one notch below BOC’s National Long-Term Rating, to reflect the subordination to senior unsecured creditors.

The issuer rating is driven by Fitch’s expectation of extraordinary support from the government of Sri Lanka (BB-/Stable). This stems from BOC’s high systemic importance, quasi-sovereign status, role as a key lender to Government, and full State ownership. The Stable Outlook on BOC reflects the Stable Outlook on the sovereign’s rating.

Rating sensitivities: The rating on the proposed debentures will move in tandem with BOC’s National Long-Term Ratings.

Any change in Sri Lanka’s sovereign rating, or in the perception of State support to BOC, could result in a change in the ratings of BOC. Visible demonstration of preferential support for BOC in the form of an explicit guarantee will be instrumental to an upgrade of its National Long-Term Rating.

A full list of BOC’s ratings follows:

Long-Term Foreign-Currency IDR: ‘BB-’; Outlook Stable

Long-Term Local-Currency IDR: ‘BB-’; Outlook Stable

Short-Term Foreign-Currency IDR: ‘B’

Viability Rating: ‘b+’

Support Rating: ‘3’

Support Rating Floor: ‘BB-’

US dollar senior unsecured notes: ‘BB-’

National Long-Term Rating: ‘AA+(lka)’; Outlook Stable

Basel II-compliant Sri Lanka rupee-denominated subordinated debentures: ‘AA(lka)’

Proposed Basel II-compliant Sri Lanka rupee-denominated subordinated debentures: ‘AA(lka)( EXP)’