Fitch rates Singer Finance (Lanka)’s senior debt ‘BBB(lka)(EXP)’

Thursday, 7 November 2019 00:59 - - {{hitsCtrl.values.hits}}

Fitch Ratings has assigned Singer Finance (Lanka) PLC’s (SFL, BBB(lka)/Stable) proposed Sri Lanka rupee-denominated senior unsecured debentures of up to Rs. 1.5 billion an expected National Long-Term Rating of ‘BBB(lka)(EXP)’.

The proposed debentures are to mature in three and five years and would carry fixed- and floating-rate coupons. SFL plans to use the proceeds to support its loan-book expansion. The debentures are to be listed on the Colombo Stock Exchange.

The final rating is subject to the receipt of final documentation conforming to information already received.

Key rating drivers

The proposed senior debentures are rated in line with SFL’s National Long-Term Rating, and rank equally with the claims of other senior unsecured creditors.

SFL’s National Long-Term Rating was affirmed on 22 February 2019. The rating reflects SFL’s small franchise and heightened risk appetite at a time when operating conditions are likely to stay challenging, which may exert pressure on some of its financial metrics.

The rating is also supported by Fitch’s view that the rating of SFL’s parent, retail company Singer (Sri Lanka) PLC (Singer; A-(lka)/Negative) provides a floor for SFL’s rating, which is two notches lower at ‘BBB(lka)’. This reflects Singer’s majority ownership in SFL and the shared Singer brand.

Rating sensitivities

The rating of the proposed notes would move in tandem with SFL’s National Long-Term Rating.

An upgrade of SFL’s ratings from an improvement in its standalone strength is unlikely, in our view, as we expect its franchise to remain materially weaker than that of its more established, higher-rated peers. The more likely driver of an upgrade of SFL’s rating would be an increase in its strategic importance to its parent Singer.

A sustained deterioration in SFL’s standalone credit profile relative to similarly rated peers would not result in a downgrade of SFL’s rating, unless our assessment of parental support were also to change.