People’s Leasing to raise Rs. 6 b; Fitch rates Senior Debt ‘AA- (EXP)’

Friday, 17 July 2015 00:43 - - {{hitsCtrl.values.hits}}

Fitch Ratings Lanka has assigned People’s Leasing & Finance PLC’s (PLC, B+/AA-(lka)/Stable) proposed senior unsecured debentures of up to Rs. 6 b an expected National Long-Term rating of ‘AA-(lka)(EXP)’.

The final rating is contingent on the receipt of the final documents conforming to information already received.

The issue is expected to have tenors of four and five years with fixed-rate coupon payments.

PLC expects to use the proceeds for working capital purposes, to diversify its funding mix, and to reduce maturity mismatches.

Key rating drivers

The proposed debenture is rated in line with PLC’s National Long-Term Rating of ‘AA-(lka)’, given that the issue is expected to rank equally with the claims of company’s other senior unsecured creditors.

PLC’s IDRs and National Long-Term Rating reflects Fitch’s view that PLC’s parent, the state-owned and systemically important People’s Bank (AA+(lka)/Stable), has a high propensity but limited ability to provide extraordinary support to PLC if required. This is because PLC is strategically important to People’s Bank; People’s Bank owns 75% of PLC and has board representation; the two entities share a common brand; and PLC is associated with People’s Bank’s franchise.

In 2014, PLC accounted for about 10% of People’s Bank group assets, and contributed about 17% of its post-tax profits. Apart from its own branches, PLC also operates 109 window offices within branches of People’s Bank.

It is likely that State support will flow to PLC through People’s Bank due to their strong linkages. PLC’s association with the People’s Bank brand and therefore with the state, and the consequent reputational risk to the state should PLC fail, also supports Fitch’s view.

Rating sensitivities

The rating on the proposed debentures will move in tandem with PLC’s National Long-Term Ratings.

PLC’s ratings may be downgraded if People’s Bank is no longer a majority shareholder in PLC, or if People’s Bank’s ability to provide support weakens, or if PLC’s strategic importance to its parent diminishes over time.

Fitch does not expect PLC’s ratings to be upgraded, unless People’s Bank’s ratings are upgraded.

PLC’s other ratings are as follows:

Long-Term Foreign-Currency IDR: ‘B+’; Outlook Stable

Long-Term Local-Currency IDR: ‘B+’; Outlook Stable

National Long-Term Rating: ‘AA-(lka)’; Outlook Stable

Sri Lanka rupee-denominated senior unsecured debentures: ‘AA-(lka)’