Bank of Ceylon goes for Rs. 8 b debenture; Fitch rates Subordinated Debt Final ‘AA’

Fitch Ratings Lanka has assigned Bank of Ceylon’s (BOC; AA+(lka)/Stable) proposed Basel II-compliant subordinated debentures of up to Rs. 8 billion a final National Long-Term Rating of ‘AA(lka)’.

The final rating is the same as the expected rating assigned on 25 October 2016 and follows the receipt of documents conforming to information already received.

The proposed issuance, which will have tenors of five and eight years and carry fixed and floating coupons, are to be listed on the Colombo Stock Exchange. BOC expects to use the proceeds to expand the loan book, improve its Tier II capital base and reduce asset and liability maturity mismatches.

Key rating drivers

The proposed subordinated debentures are rated one notch below BOC’s National Long-Term Rating to reflect the subordination to senior unsecured obligations.

The National Long-Term Rating of BOC reflects Fitch’s expectation of extraordinary support from the sovereign. Fitch expects support for BOC to stem from its high systemic importance, quasi-sovereign status, role as a key lender to the Government and full state ownership.

Rating sensitivities

The ratings on the proposed debentures will move in tandem with BOC’s National Long-Term Rating.

Any change in Sri Lanka’s sovereign rating or the perception of state support to BOC could result in a change in its National Long-Term Rating. Visible demonstration of preferential support for BOC in the form of an explicit guarantee may be instrumental to an upgrade of its National Long-Term Rating.

BOC’s ratings are follows:

Long-Term Foreign-Currency IDR: ‘B+’; Outlook Negative

Short-Term Foreign-Currency IDR: ‘B’

Long-Term Local-Currency IDR: ‘B+’; Outlook Negative

National Long-Term Rating: ‘AA+(lka)’; Outlook Stable

Viability Rating: ‘b+’

Support Rating: ‘4’

Support Rating Floor: ‘B+’

US dollar senior unsecured notes: ‘B+’; Recovery Rating at ‘RR4’

Basel II compliant outstanding subordinated debentures: ‘AA(lka)’

Proposed Basel II compliant subordinated debentures: ‘AA(lka)’