Fitch assigns ‘A-(EXP)(lka)’ rating to Asia Asset Finance’s proposed debentures

Tuesday, 27 October 2026 00:00 - - {{hitsCtrl.values.hits}}

Fitch Ratings yesterday assigned Asia Asset Finance PLC’s (AAF) proposed Sri Lankan rupee-denominated subordinated listed debentures of up to Rs. 3 billion an expected National Long-Term Rating of ‘A-(EXP)(lka)’.

AAF is rated ‘A+(lka)’ with a Stable Outlook.

The debentures are likely to have a five-year maturity and will be listed on the Colombo Stock Exchange (CSE). AAF plans to use the proceeds to strengthen its Tier 2 capital base, the secondary layer of regulatory capital, and to support loan-book expansion. The final rating is subject to Fitch receiving final documentation that conforms to information already received.

The proposed debentures are rated two notches below AAF’s National Long-Term Rating. Fitch said it applied its Bank Rating Criteria in rating the instrument, as it believes the prudential capital framework for Sri Lankan finance companies is closer to that for banks. The expected rating reflects Fitch’s baseline notching for loss severity for this debt class and its expectation of poor recoveries in the event of default.

Fitch applied no additional notching for non-performance risk, as the debentures do not contain going-concern loss-absorption features, meaning they cannot be written down or converted to equity while the company continues to operate.

AAF’s own National Long-Term Rating reflects Fitch’s expectation that its majority shareholder, India-based Muthoot Finance Ltd (MFL), rated ‘BB+’ with a Stable Outlook, would provide extraordinary support to AAF if needed. Fitch based this view on MFL’s 78.4% shareholding, its record of ordinary equity support, and the strategic and operational alignment between parent and subsidiary in their core product, gold-backed loans.

Even so, the agency assesses AAF’s strategic importance to MFL as limited, given the subsidiary’s small size, modest role and contribution, limited brand sharing and operations in a different jurisdiction. AAF’s standalone credit profile does not drive the rating, and Fitch assesses it as significantly weaker than the support-driven rating.

As the subordinated debt rating is linked to AAF’s National Long-Term Rating, which is in turn driven by expected support from MFL, Fitch said any upgrade or downgrade of AAF’s National Long-Term Rating would lead to a corresponding upgrade or downgrade of the expected subordinated debt rating.