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Fitch Rates People's Leasing's Senior Debt 'AA-(lka)(EXP)'
August 8, 2014 / 9:47 AM / 3 years ago

Fitch Rates People's Leasing's Senior Debt 'AA-(lka)(EXP)'

(The following statement was released by the rating agency) COLOMBO/TAIPEI, August 08 (Fitch) Fitch Ratings has assigned People's Leasing & Finance PLC's (PLC, B+/AA-(lka)/Stable) proposed senior unsecured debentures of up to LKR3bn an expected National Long-Term 'AA-(lka)(EXP)' rating. The final rating is contingent on the receipt of the final documents conforming to information already received. A full rating breakdown is provided at the end of this commentary. The issue is expected to have tenors of three and four years with fixed-rate coupon payments. PLC expects to use the proceeds for working capital purposes. 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 company's senior unsecured creditors. KEY RATING DRIVERS - NATIONAL RATINGS AND DEBT PLC's National Long-Term Rating reflects Fitch's view that PLC's parent, the state-owned and systemically important People's Bank (PB, AA+(lka)/Stable), has a high propensity but limited ability to provide extraordinary support to PLC if required, because PLC is strategically important to PB and due to other linkages. These linkages include PB's majority ownership and board representation, a common brand and PLC's association with PB's franchise. In 2013, PLC accounted for over 11% of PB's group assets, and contributed to over 25% of its post-tax profits. Apart from its own branches, PLC also operates 109 window offices within PB's branches. It is likely that state support will flow to PLC through PB, due to their strong linkages. PLC's association with the PB brand and therefore with the state, and the consequent reputational risk to the state should PLC fail, also supports Fitch's view. PB's limited ability to provide support to PLC stems from its own 'AA+(lka)' rating, which is in turn derived from the government of Sri Lanka's (BB-/Stable) high propensity but moderate ability to provide support to the bank under extraordinary situations. The two-notch differential between the National Long-Term ratings of PLC and PB reflect Fitch's view that timely support from the state may be constrained by regulatory restrictions between the entities (such as maximum exposure limits) or administrative delays usually seen in layered support structures. PLC's outstanding senior unsecured redeemable debentures are rated in line with its National Long-Term Rating, because the instruments do not have any going concern- or gone-concern loss-absorbing features, and are therefore expected to be repaid in line with PLC's other senior creditors in the event of a liquidation. RATING SENSITIVITIES - NATIONAL RATINGS AND DEBT PLC's ratings may be downgraded if PB gives up its majority stake in PLC, or if PB's ability to provide support weakens, or if PLC's strategic importance to PB diminishes over time. Fitch does not expect PLC's standalone credit profile to improve above its Long-Term IDRs, primarily due to higher business and financial risks than companies that are rated higher than PLC. Therefore, Fitch does not expect PLC's ratings to be upgraded, unless PB's ratings are upgraded. A full list of PLC's ratings: Long-Term Foreign-Currency IDR: 'B+'; Stable Outlook Long-Term Local-Currency IDR: 'B+'; Stable Outlook National Long-Term Rating: 'AA-(lka)'; Stable Outlook Outstanding Senior unsecured debentures: 'AA-(lka)' Proposed Senior unsecured debentures: 'AA-(lka)(EXP)' National short-term commercial paper rating: 'F1+(lka)' Contacts: Primary Analyst Rukshana Thalgodapitiya Vice President +941 1254 1900 Fitch Ratings Lanka Ltd 15-04, East Tower, World Trade Center Colombo 1, Sri Lanka Secondary Analyst Nayantara Bandaranayake Analyst +941 1254 1900 Committee Chairperson Jonathan Lee Senior Director +886 2 8175 7600 Media Relations: Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email: bindu.menon@fitchratings.com; Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com. People's Bank has a 1.79% equity stake in Fitch Ratings Lanka Ltd. No shareholder other than Fitch, Inc. is involved in the day-to-day rating operations of, or credit reviews undertaken by, Fitch Ratings Lanka Ltd. Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 31 January 2014, 'Rating FI Subsidiaries and Holding Companies', dated 10 August 2012, 'Finance and Leasing Companies Criteria', dated 11 December 2012, and 'National Scale Ratings Criteria', dated 30 October 2013, are available on www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Rating FI Subsidiaries and Holding Companies here Finance and Leasing Companies Criteria here National Scale Ratings Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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