Fitch rates People’s Leasing’s proposed Rs. 1 b CP ‘F1+’

Fitch Ratings Lanka has assigned People’s Leasing Company PLC’s (PLC, ‘AA-(lka)’/Stable) proposed issue of commercial paper of up to Rs. 1 billion a National Short-Term ‘F1+(lka)’ rating. A full list of PLC’s ratings is provided at the end of this commentary.

The proposed notes will have a tenor of up to one year, and will be used to finance the company’s working capital requirements.

The ratings reflect potential extraordinary support from the Government (‘BB-’/Stable) through PLC’s state-owned parent, People’s Bank (PB; ‘AA+(lka)’/Stable), in times of distress. PB owns 75% of PLC. This is based on the strong linkages between PLC and PB, the subsidiary’s strategic importance to PB, as well as the consequent reputation risk to the Government if PLC were to default on its financial obligations.

PB’s capacity to support PLC is derived from the financial capacity and propensity of the Government of Sri Lanka, given the bank’s increasing role in Sri Lanka’s post-war economic development and its high systemic importance (18% of system assets and deposits in 2011).  PLC is the largest non-bank financial institution in Sri Lanka by advances, with a 21% share of the market at end-2011. At end-June 2012, its total assets and post-tax profits stood at Rs. 96 billion and Rs. 720 million respectively.