Fitch affirms 7 Sri Lankan finance companies
Fitch Ratings has affirmed the ratings of People's Leasing & Finance PLC (PLC), Central Finance Company PLC (CF), Melsta Regal Finance Ltd (MRF), Siyapatha Finance PLC (Siyapatha), Senkadagala Finance PLC (Senka), AMW Capital Leasing and Finance PLC (AMC) and Singer Finance PLC (SFL).
It said PLC's Issuer Default Rating (IDR) and National Long-Term Rating reflect Fitch's view that PLC's parent, state-owned People's Bank (PB) has a high propensity but limited ability to provide extraordinary support to PLC if required. PB's high propensity to provide support to PLC stems from its 75 per cent shareholding in PLC and a common brand.
“PB's limited ability to provide support to PLC is evident from its own 'AA+(lka)' rating, which is driven by the government of Sri Lanka's (BB-/Stable) high propensity but moderate ability to provide support to the bank under extraordinary situations,” the Fitch media statement said.
The two-notch differential between the National Long-Term Ratings of PLC and PB reflects 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.
AMCL's rating reflects Fitch's view that support would be forthcoming from Associated Motorways Pvt Ltd (AMW), which owns 90 per cent of AMCL, given the finance company's strategic importance to the parent.
This is based on AMCL's role in the group, given strong synergies and operational integration. While its share of financing of AMW's vehicle sales has remained moderate, AMCL accounted for a substantial share of group profit and assets at end-2014. About 46 per cent of its advances comprised vehicle finance facilities provided to its parents' clients at end-2014. Fitch believes that additional incentives for AMW to provide support to AMCL stem from the common AMW brand, which could have high reputational impact on AMW should AMCL default.
SFL is rated two notches below its parent, retailing company Singer (Sri Lanka) PLC. This reflects Singer's majority ownership in SFL, the common Singer brand and Singer's influence on SFL's strategic direction through representation on the finance company's board.
Siyapatha's ratings reflect Fitch's view that support would be forthcoming from its parent, Sampath Bank PLC (Sampath), which fully owns Siyapatha and involvement in the strategic direction of Siyapatha through board representation.
Siyapatha is rated two notches below its parent because of Siyapatha's limited role in the group's core business.
Siyapatha's contribution to group profit remains low, averaging 5 per cent of group profit for 2012 to 2014. Fitch does not view a potential disposal of Siyapatha, which is not being planned, as being material to the group.
MRF's rating reflects Fitch's expectation of support from its ultimate parent, Distilleries Company of Sri Lanka (DIST). DIST has full effective ownership of MRF through Melstacorp Ltd, ss investment holding company for DIST's non-beverage assets. DIST's ability to support the entity is based on its market leadership in alcoholic beverage production in Sri Lanka, a highly profitable sector characterised by relatively stable demand through economic cycles and high entry barriers.
CF's rating continues to be supported by its strong capitalisation, which stems from robust profitability and high profit retention, and a better funding profile than its peers due to a higher proportion deposits that are sourced from its established franchise. However, these strengths are counterbalanced by weakening asset quality and lower provisioning levels compared to peers.
Senka's ratings reflect its satisfactory credit profile through economic cycles, strong franchise and access to long-term institutional funding. SFC's asset quality remains weak due to its inability to dispose of repossessed vehicles in a timely manner.“The senior unsecured debentures of PLC, Siyapatha, Senka and SFL, and the senior secured debentures of SFL and CF are rated in line with their National Long-Term Ratings according to Fitch criteria. Fitch has not provided any rating uplift for the collateralisation as the secured notes' recovery prospects are considered to be average and comparable with those of unsecured notes in a developing legal system,” the release said.