Fitch rates LB Finance PLC’s senior and subordinated debt

Wednesday, 20 September 2017 00:00 - - {{hitsCtrl.values.hits}}

Fitch Ratings has assigned LB Finance PLC’s (LB; A-(lka)/Stable) proposed senior unsecured and subordinated debentures expected National Long-Term Ratings of ‘A-(lka)(EXP)’ and ‘BBB+(lka)(EXP)’ respectively. The issuance is to total Rs. 3 billion, with the debentures to mature in five years and carry fixed coupons. The debentures are to be listed on the Colombo Stock Exchange. LB expects to use the proceeds to fund loan book growth, reduce asset and liability maturity mismatches and to improve its Tier II capital base.

The final ratings on the debentures are subject to the receipt of final documentation conforming to information already received.

Key rating drivers

The proposed senior debentures are rated at the same level as LB’s National Long-Term Rating as they constitute unsecured and unsubordinated obligations of the company. The proposed subordinated debentures are rated one notch below its National Long-Term Rating to reflect the subordination to its senior unsecured obligations.

The rating of LB captures its established franchise, and satisfactory levels of capital, which are supported by sound profitability through its higher-yielding products. These are counterbalanced by its relatively higher risk appetite as seen from its exposure to gold-backed lending. The rating also reflects increasing liquidity risk, which could reduce its liquidity buffer.

Rating sensitivities

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