Fitch publishes MBSL’s proposed Rs. 1 b subordinated debt rating of ‘BBB+’

Tuesday, 6 May 2025 01:40 - - {{hitsCtrl.values.hits}}

Fitch Ratings has published the expected National Long-Term Rating of ‘BBB+(EXP)(lka)’ on Merchant Bank of Sri Lanka and Finance PLC’s (MBSL, A(lka)/Stable) proposed subordinated debentures of up to Rs. 1 billion.

The proposed Sri Lanka rupee-denominated debentures will mature in five years and will be listed on the Colombo Stock Exchange. The company plans to use the proceeds to strengthen its Tier 2 capital base and support loan-book expansion.

The final rating is subject to the receipt of final documentation conforming to information already received.

Fitch issued the following key drivers for its rating decision.

“MBSL’s Sri Lankan rupee-denominated subordinated debentures are rated two notches below its National Long-Term Rating. We applied the Bank Rating Criteria in rating this instrument, as we believe Sri Lankan finance companies have a prudential capital framework closer to that for banks. The rating reflects our baseline notching for loss severity for this debt class and our expectation of poor recovery in the event of default. There is no additional notching for non-performance risk, as the notes do not contain going-concern loss-absorption features,” Fitch added.

MBSL’s National Long-Term Rating was upgraded to ‘A(lka)’ from ‘BBB+(lka)’ on 24 January 2025 following the upgrade of parent Bank of Ceylon’s (BOC, AA-(lka)/Stable) National Long-Term Rating to ‘AA-(lka)’ from ‘A(lka)’. MBSL’s rating reflects our expectation that BOC would provide extraordinary support to the subsidiary if required. This view is based on BOC’s 84.5% stake, history of equity support, control over MBSL’s policies and strategies through board representation, and known links between BOC and MBSL.

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