Developing Outlook:

RAM Ratings Lanka puts Ratings of AFL on Watch

RAM Ratings Lanka has placed the long-term rating of Asian Finance Limited (AFL) on Rating Watch, with a developing outlook. Currently, AFL’s carries long and short-term ratings of BB+/NP.

AFL is a Central Bank regulated finance company, which is a part of the Ceylinco Group.

Previously, the Company benefited from the group franchise. however, since the crash of the Golden Key Credit Card Company, public confidence in Ceylinco related finance companies has waned significantly, resulting in a sharp decline in deposit renewals.

To stem the exodus, the management has been seeking new investors to restore public confidence and liquidity. On March 16, the Central Bank said that AFL will engage Lanka Puthra Development Bank as its “Managing Agent”.

The Rating Watch (with a developing outlook) highlights potential changes in the Company’s credit profile. RAM Ratings Lanka said that AFL intends to prune its overheads.

However, concerns hinge on how successful the Company will be in instilling public confidence in the immediate term.

In addition, it is unclear at this juncture the mechanisms AFL will use to improve its current liquidity position and the resultant long term impact on its balance sheet profile.

The Rating Watch will be resolved once the role and plan of LDB is made known together with AFL’s current financial position and performance.

RAM Ratings Lanka lowered AFL, by one notch, to BB+ in July 2008 owing to its substantial exposure to real estate business amid a weakening macro-economic backdrop. RAM Rating Lanka’s Rating Watch highlights a possible change in rating.