ECONOMYNEXT – Fitch Ratings has assigned Merchant Bank of Sri Lanka & Finance’s 1 billion rupee debenture issue a national long-term rating of ‘BBB+(lka)’.
“The rating reflects our baseline notching for loss severity for this debt class and our expectation of poor recovery in the event of default,” the rating agency said.
MBSL’s National Long-Term Rating was upgraded to ‘A(lka)’ from ‘BBB+(lka)’ on January 24 following the upgrade of parent Bank of Ceylon’s (BOC, AA-(lka)/Stable) National Long-Term Rating to ‘AA-(lka)’ from ‘A(lka)’.
The full statement is reproduced below:
Fitch Publishes Merchant Bank of Sri Lanka’s Proposed Subordinated Debt Rating of ‘BBB+(EXP)(lka)’
Fitch Ratings – Colombo – 02 May 2025: Fitch Ratings has published the expected National Long-Term Rating of ‘BBB+(EXP)(lka)’ on Merchant Bank of Sri Lanka & Finance PLC’s (MBSL, A(lka)/Stable) proposed subordinated debentures of up to LKR1 billion.
The proposed Sri Lanka rupee-denominated debentures will mature in five years and will be listed on the Colombo Stock Exchange. The company plans to use the proceeds to strengthen its Tier 2 capital base and support loan-book expansion.
The final rating is subject to the receipt of final documentation conforming to information already received.
Key Rating Drivers
MBSL’s Sri Lankan rupee-denominated subordinated debentures are rated two notches below its National Long-Term Rating. We applied the Bank Rating Criteria in rating this instrument, as we believe Sri Lankan finance companies have a prudential capital framework closer to that for banks. The rating reflects our baseline notching for loss severity for this debt class and our expectation of poor recovery in the event of default. There is no additional notching for non-performance risk, as the notes do not contain going-concern loss-absorption features.
MBSL’s National Long-Term Rating was upgraded to ‘A(lka)’ from ‘BBB+(lka)’ on 24 January 2025 following the upgrade of parent Bank of Ceylon’s (BOC, AA-(lka)/Stable) National Long-Term Rating to ‘AA-(lka)’ from ‘A(lka)’. MBSL’s rating reflects our expectation that BOC would provide extraordinary support to the subsidiary if required. This view is based on BOC’s 84.5% stake, history of equity support, control over MBSL’s policies and strategies through board representation, and known links between BOC and MBSL.
Please refer to our commentary, Fitch Upgrades 10 Sri Lankan NBFIs’ Ratings, Affirms 8 Following National Scale Recalibration, published 24 January 2025 for details on the key rating drivers.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
A downgrade of MBSL’s National Long-Term Rating would lead to a downgrade of the expected subordinated debt rating.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
An upgrade of MBSL’s National Long-Term Rating would lead to an upgrade of the expected subordinated debt rating. (Colombo/May2/2025)
