Fitch rates HNB’s proposed sub debt ‘A+(lka)’

Fitch Ratings Lanka has assigned Hatton National Bank PLC’s (HNB) proposed subordinated debentures of upto Rs 2.0 billion a National Long-Term rating of ‘A+(lka)’.

The issue is rated one notch below HNB’s National Long-Term rating reflecting its debt-like features. The proposed debentures will have a maturity of 10 years with principal repayment as a bullet payment on maturity. Coupon payments will be semi-annual at a fixed rate and do not contain any deferral clauses.

The debentures are to be listed on the Colombo Stock Exchange alongside HNB’s other listed and rated debentures.

As at June 2011, HNB’s tier I and total capital adequacy ratio (CAR) was 9.13 percent and 10.3 percent, respectively, at the bank level.

The subordinated debenture issue will increase HNB’s regulatory Tier 2 capital from Rs 2.7 billion as at June 2011 to Rs 4.7 billion and enable the bank to better match projected growth in its housing loan book.

As such, Fitch estimates that the bank’s total regulatory CAR would incrementally rise by about 0.87 percent after the issuance in June 2011, excluding un-audited profit for the six-month period ended June 2011 and the subsequent rights issue announced by the bank.

However under Fitch’s criteria, these securities will receive zero equity credit as they do not allow for going-concern loss absorption.

By itself, further expected strong growth at the bank will result in a weakening of its capitalization, as per the agency’s measures.