Fitch assigns People’s Leasing’s Listed Debt Final ‘AA-(lka)’ rating

Fitch Ratings has assigned People’s Leasing & Finance PLC’s (PLC, B+/AA-(lka)/Stable) listed senior unsecured redeemable debentures of up to Rs 6 billion, a final National Long-Term rating of ‘AA-(lka)’.

The assignment of the final rating follows the receipt of final documents conforming to information previously received. The final rating is at the same level as the expected rating assigned on March 5, 2013 (see ‘Fitch Rates People’s Leasing’s Proposed Senior Debt ‘AA-(lka)(EXP)’’ on www.fitchratings.com & www.fitchratings.com).

The issue is open for subscription on March 19, 2013. The debentures are rated in line with PLC’s National Long-term rating of ‘AA-(lka),’,given that the debenture holders rank equally with the company’s senior unsecured creditors.

PLC’s ratings reflect the capacity and willingness of its state-owned parent People’s Bank (PB, AA+(lka)/Stable, 75% ownership) to extend extraordinary support to PLC in times of distress. This is in turn driven by PLC’s strong association with PB’s brand and its strategic importance to PB.

PB’s capacity to support PLC is in turn derived from the financial capacity and propensity of the government of Sri Lanka (BB-/Stable), given the bank’s increasing role in Sri Lanka’s post-war economic development and its high systemic importance (18% of system assets and deposits in 2011). Fitch believes it is highly likely for government support to flow through to PLC via PB due to the reasons mentioned above as well as the potential reputation risk to the government should PLC default on its financial obligations.

The two-notch differential between the National Long-Term ratings of PLC and PB reflects potential administrative difficulties and regulatory restrictions (such as maximum single-party exposures) that exist between the companies which could impede the flow of government support to PLC. Such impediments are usually observed in layered support structures.

A change to PB’s rating may result in a corresponding change to PLC’s ratings, provided that the linkage between PB and PLC remains intact. PLC’s ratings may be downgraded if PB gives up its controlling stake, or if PLC’s strategic importance to PB diminishes over time.