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| Tuesday, 6 April 2004 |
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Bank interest rates likely to change after polls - Capital Alliance CEO by Shirajiv Sirimane The bank interest rates are likely to change after the election," said Capital Alliance CEO Ajith Fernando. Speaking at the issue of SLA Rated Lease Backed Trust Certificates to the value of Rs. 500 million he said that the interest rates depend on the economic policy of the newly elected government. "If the new government decides to concentrate more on welfare it would lead to borrowing. This would result in increased interest rates," he said. This transaction that is being managed by Capital Alliance Holdings Limited has been assigned a SLA rating by Fitch Rating Lanka Limited, and indicates a very high credit quality. This is the first time a lease backed note has been rated in Sri Lanka. "Secured financial instruments are the fastest growing financial products", he said. People's Bank Chairman, Lal Nanayakara said that assigning of SLA was not a surprise to the Bank, as People's Leasing has become a profitable company. He said that the company recorded a profit of Rs. 200 million last year, an increase of Rs. 100 million compared to the previous year. He attributed this to the transition by opening new branches which included the North East. Fitch Ratings Lanka has assigned a rating of SLA for the Lease Backed Trust Certificates (LBTC), to be issued by a Special Purpose Vehicle (SPV) called People's Leasing Trust Nine, under the asset backed borrowing program of People's Leasing Company Limited (PLC). SLA rating denotes a low credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings. PLC proposes to pledge the receipts from a pool of lease contracts to Deutsche Bank (DB) in its capacity as the Trustee for a Special Purpose Vehicle (SPV) Trust. The Trust so declared is called PLC Trust Nine, and finances the loan to PLC by issuing LBTCs to market investors to the value of Rs. 500 million. PLC would continue to service the underlying contracts. The LBTCs are backed by a pool of 585 lease contracts with a principal outstanding of Rs. 629 million at the point of origination. The contracts have been originated to finance motor vehicles. All the leases are level pay fixed rate receivables with average seasoning of 3.5 months, weighted average Loan to Value (LTV) of 93% and no delinquency at the point of origination of the trust. The rating of the LBTCs is based on the credit enhancement in the form of an average and minimum Debt Service Cover of 1.40 and 1.21 respectively. Principal over collateralisation in the form of asset cover stands at 20% at the beginning of the transaction. In order to maintain the collateral quality and cash flow cover, the transaction provides for replacement of leases which have prepaid or gone into a delinquency status of 2 months, every 3 months or whenever the principal of delinquent leases has risen above 2.5% of gross principal outstanding of the then existing aggregate lease principal. People's Leasing Company Ltd (PLC) is a specialised leasing company, which commenced operations in 1996 as a fully owned subsidiary of People's Bank. PLC was formed to carry out leasing finance for the customers of People's Bank. PLC has benefited from the strong franchise and operational support from People's Bank, which includes customer referral. Fitch Ratings Lanka Ltd is a joint venture between Fitch Ratings, USA, International Finance Corporation Washington of the Central Bank. |
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