Fitch Maintains Ceylon Income Fund on Rating Watch Negative

Friday, 4 September 2015 00:00 - - {{hitsCtrl.values.hits}}

Fitch Ratings has maintained the ‘(A(lka))’ National Fund Credit Quality Rating of the Ceylon Income Fund on Rating Watch Negative. The National Fund Volatility Rating is ‘V-NR’.

Key rating drivers

The maintenance of the RWN is driven by an increase in the proportion of the fund rated only by Lanka Rating Agency (LRA) following redemption activity in the fund. The Securities and Exchange Commission of Sri Lanka issued a statement in July 2015 saying that LRA is not entitled to assess, evaluate or review the creditworthiness of listed securities or securities to be listed.

The fund’s Weighted Average Rating Factor was previously consistent with a National Fund Credit Quality Rating in the ‘A(lka)’ category. The fund primarily invests in corporate debt instruments and is managed by Ceylon Asset Management.

Rating sensitivities

Fitch will resolve the RWN with an affirmation if the assets that were previously rated by LRA reduce materially or if these assets are rated by another rating agency, in accordance with the plan communicated to Fitch by the manager.

Conversely, should the proportion of assets rated by LRA only remain high and efforts to exit these LRA-only rated securities in the short timeframe expected by the manager prove unsuccessful, then Fitch will likely withdraw the rating due to insufficient information to maintain the rating.

In accordance with Fitch’s policies the issuer appealed and provided additional information to Fitch that resulted in a rating action which is different than the original rating committee outcome.