Fitch rates DVB’s Sub Debt ‘A+(lka)’

Fitch Ratings Lanka has assigned DFCC Vardhana Bank Limited’s (DVB) proposed subordinated debentures of up to Rs 1.0 billion a national rating of ‘A+(lka)’. The agency has simultaneously affirmed DVB’s national long-term rating at ‘AA-(lka)’ with a stable outlook.

The proposed debt issue has tenures ranging from five to seven years, and will have both fixed and floating coupon rates. Capital will be re-paid on maturity. The proposed debenture will be utilized to finance loan growth and will also help strengthen the bank’s tier two capital. It is expected to be listed on the Colombo Stock Exchange, and is DVB’s initial step in fulfilling the regulatory listing requirements for licensed commercial banks (LCB).

The ratings reflect Fitch’s expectation that support would be forthcoming from its parent, DFCC Bank (DFCC; ‘AA(lka)’/Stable), should it be required. DVB is almost fully owned by DFCC, with the latter increasing its stake to 99.01% in June 2011 (end-2010: 95.58%) via a rights issue; this will increase DVB’s capital base by Rs 1.1 billion. It accounted for 33% of the DFCC Group’s assets at end-March 2011, and plays an important role in expanding the group’s product offering. In addition to the common franchise shared by both banks, the operations of the two are closely linked with the integration of key back-office and treasury functions, as well as shared personnel and inputs on key decision-making committees.

DVB’s rating is linked to that of DFCC and contingent on the support assumed to be available from the parent. Therefore, any changes to the implied support from DFCC or the strategic importance of DVB to its parent could trigger a rating action.