ECONOMYNEXT – Bank of Ceylon’s proposed Basel III-compliant subordinated unsecured debentures of up to 15 billion rupees has been assigned an expected national long-term rating of ‘A(EXP)(lka)’ by Fitch Ratings.
BOC’s Sri Lankan rupee-denominated subordinated debt is rated two notches below the bank’s National Long-Term Rating anchor.
“Fitch assumes that the authorities would step in late, moving the point of non-viability close to liquidation,” the rating agency said.
“The notes also do not have contingent conversion or write-down triggers that create moderate or high incremental non-performance risk relative to the anchor.”
The bank plans to use the proceeds to strengthen its Tier 2 capital base and liquidity position, bridge maturity mismatches, and support the expansion of its asset base.
The full statement is reproduced below:
Fitch Rates Bank of Ceylon’s Basel III Subordinated Debt ‘A(EXP)(lka)’
Fitch Ratings – Singapore – 02 Apr 2025: Fitch Ratings has assigned Bank of Ceylon’s (BOC) (CCC+/CCC+/AA-(lka)/Stable) proposed Basel III-compliant subordinated unsecured debentures of up to LKR15 billion an expected National Long-Term Rating of ‘A(EXP)(lka)’.
The proposed debentures will mature in five years and be listed on the Colombo Stock Exchange. The bank plans to use the proceeds to strengthen its Tier 2 capital base and liquidity position, bridge maturity mismatches, and support the expansion of its asset base.
The proposed debentures will qualify as Basel III-compliant regulatory Tier 2 capital. The debentures include a non-viability clause whereby the notes will be converted to an Additional Tier 1 (AT1) instrument on a permanent basis, subject to the occurrence of a trigger event, as determined by the Governing Board of the Central Bank of Sri Lanka.
The final rating is subject to the receipt of final documentation conforming to information already received.
Key Rating Drivers
BOC’s Sri Lankan rupee-denominated subordinated debt is rated two notches below the bank’s National Long-Term Rating anchor. This reflects Fitch’s baseline notching for loss severity for this type of debt, and our expectations of poor recoveries upon non-performance. There is no additional notching for non-performance risks as the notes do not incorporate going-concern loss-absorption features and will only convert to AT1 at the point of non-viability.
Fitch assumes that the authorities would step in late, moving the point of non-viability close to liquidation. The notes also do not have contingent conversion or write-down triggers that create moderate or high incremental non-performance risk relative to the anchor.
BOC’s National Long-Term Rating is used as the anchor rating for this instrument because the rating reflects the bank’s standalone financial strength and best indicates the risk of the bank becoming non-viable.
For details of the key rating drivers and rating sensitivities of BOC’s National Long-Term Rating, see Fitch Upgrades 10 Sri Lankan Banks’ National Ratings and Affirms Five after Scale Recalibration, published on 21 January 2025.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
A downgrade of the bank’s National Long-Term Rating would lead to a downgrade of the subordinated debt rating.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
An upgrade of the bank’s National Long-Term Rating would lead to an upgrade of the subordinated debt rating.
BOC has a 1.78% equity stake in Fitch Ratings Lanka Ltd. No shareholder other than Fitch, Inc. is involved in the day-to-day rating operations of, or credit reviews undertaken by, Fitch Ratings Lanka Ltd.
Date of Relevant Committee
21 January 2025
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
(Colombo/Apr4/2025)
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