Fitch puts Ceylease on Watch Positive; affirms MCSL Financial Services on merger

Fitch Ratings Lanka has placed Ceylease Ltd.’s (CL) National Long-Term Rating of ‘BB+(lka)’ on Rating Watch Positive (RWP) and has affirmed MCSL Financial Services Ltd.’s (MFSL) National Long-Term Rating at ‘BBB(lka)’ with a Stable Outlook. This follows the announcement of the proposed merger between the two entities.

Fitch will upgrade CL’s rating to align with MFSL’s rating upon the conclusion of the merger. This is based on Fitch’s expectations that Bank of Ceylon (BOC; ‘AA+(lka)’/Stable), parent to both MFSL and Ceylease, will maintain a dominant effective shareholding in and continue to provide support to the merged entity.

The affirmation of MFSL’s rating reflects Fitch’s view that support from its parent BOC will remain unchanged, despite a change to its shareholding in MFSL after the merger.

BOC has an effective shareholding of 86%, in MFSL and is represented on the board. CL’s current shareholders are BOC with a 55% stake, Phoenix Group with 27.5% and Prime Lands Ltd. with 17.5%.

MFSL’s rating may be affected by developments leading to a change in the likelihood of support from BOC, including a significant change in BOC’s effective shareholding and board control.

The merger is subject to obtaining the necessary regulatory and statutory approvals.