Fitch rates Senkadagala Finance's proposed senior debt at 'BBB+(lka)(EXP)'
Fitch Ratings has assigned Sri Lanka-based Senkadagala Finance PLC's
(SFC; BBB+(lka)/Stable) proposed issue of senior unsecured redeemable
listed debentures of up to Rs1bn an expected National Long-Term rating
of 'BBB+(lka)(EXP)'. SFC will issue the debentures subject to receiving
the necessary regulatory approvals. The final rating is contingent upon
the receipt of final documentation conforming to information already
received, including details regarding the amount and tenor.
The proposed debentures are rated at the same level as SFC's National
Long-Term rating as they will constitute direct, unconditional,
unsecured and unsubordinated obligations of the bank. The proposed
debentures will be issued in two tranches with a maturity of three and
four years, while coupon payments will be at fixed and floating
rates.The notes do not contain any deferral clauses. SFC expects to use
the proceeds to fund its ongoing lending activities and to help reduce
maturity mismatches between its assets and liabilities. SFC's rating
reflects its long operating history and sound credit profile through
economic cycles, upported by credit controls, low refinancing risk and
high profitability compared with domestic peers.
SFC's credit profile is constrained by its elevated financial risk,
as reflected in lower capitalisation - measured by its Tier 1 capital
adequacy ratio (CAR) and equity/assets ratio - during the financial year
ended March 2012. Tier 1 CAR (after including retained profits) improved
to an estimated 14.4% during 9MFY13 (FY12: 11.5%) as the rate of
internal capital generation kept pace with asset growth. SFC relies to a
large extent on secured borrowings to fund its lending activities, which
has helped the company to reduce refinancing risk. However,
over-reliance on secured borrowings can limit SFC's future financing
flexibility to the extent of unencumbered assets on its balance sheet.
A continued weakening in SFC's capitalisation or financial
flexibility as indicated by a further reduction of unencumbered assets
relative to unsecured liabilities could lead to a downgrade.
An upgrade of SFC's rating is contingent upon the company
strengthening its franchise and improving its capitalisation to levels
commensurate with higher-rated peers, while maintaining satisfactory
asset quality and profitability.