Fitch upgrades People’s Leasing and People’s Finance

Saturday, 7 January 2012 02:15 - - {{hitsCtrl.values.hits}}

Fitch Ratings Lanka has upgraded People’s Leasing Company Plc’s (PLC) National Long-Term rating to ‘A+(lka)’ from ‘A(lka)’ and People’s Finance Plc’s (PF) to ‘A-(lka)’ from ‘BBB(lka)’. The Outlooks are Stable.

PLC’s outstanding Rs. 1,155 m senior unsecured redeemable debentures have also been upgraded to ‘A+(lka) from ‘A(lka)’. The upgrade reflects the increased capacity of the systemically important State-owned parent – People’s Bank (PB, ‘AA(lka)’/Stable) – to support PLC and PF.

PB’s National Long-Term was upgraded to ‘AA(lka)’/Stable from ‘AA-(lka)’/Positive in November 2011 to reflect Fitch’s view of the Government of Sri Lanka’s increased capacity to support PB as indicated by the upgrade of the Sri Lanka’s Sovereign Issuer Default Rating to ‘BB-’ from ‘B+’ in July 2011.PLC’s and PF’s ratings also reflect their ownership by integration with and strategic importance to PB. Fitch considers these aspects key elements when assessing an institutions willingness to provide support. PB owns 75% of PLC and indirectly owns 66% in PF through PLC.

Operationally, PLC benefits from PB’s extensive branch network, and operated over 130 ‘window offices’ within PB branches besides 43 standalone branches at end-September 2011. This has enabled PLC to maintain a wide reach yet keep operating costs low compared with peers. PLC in turn exercises control over PF at both a strategic and operational level.

In addition, PB is represented on the boards of PLC and PF. At end-September 2011 (H212), the PLC group, which includes PF and five other subsidiaries, accounted for 12% of PB’s group assets and 36% of the group’s profits.

Fitch also factors in the subsidiaries’ strong association with, and consequent reputation risk to, PB’s franchise.

Any changes in Fitch’s assessment of PB’s ability and willingness to support its subsidiaries could trigger rating actions at PLC and PF.

PLC is a specialised leasing company established in 1995. The company acquired PF, a registered finance company, in 2009. At H212, total consolidated assets of the PLC group were LKR 87.1bn with PF contributing 16% of the total.