Fitch Ratings has assigned Bank of Ceylon’s (BOC; AA+(lka)/Stable) proposed up to Rs.8 billion of subordinated debentures a final National Long-Term Rating of ‘AA(lka)’. The assignment of the final rating follows the receipt of documents conforming to information already received, and the final rating is the same as the expected ratings assigned on 17 July 2015.
The proposed subordinated debentures, which will have tenors of five and eight years and carry fixed and floating coupons, will be listed on the Colombo Stock Exchange. BOC plans to use the proceeds to strengthen its Tier 2 capital base and reduce asset and liability maturity mismatches.
The proposed subordinated debentures are rated one notch below BOC’s National Long-Term Rating to reflect the subordination to senior unsecured creditors. The issuer rating is driven by Fitch’s expectation of extraordinary support from the government of Sri Lanka (BB-/Stable). This stems from BOC’s high systemic importance, quasi-sovereign status, role as a key lender to government, and full state ownership. The Stable Outlook on BOC reflects the Stable Outlook on the sovereign’s rating.
Any change in BOC’s National Long-Term Rating will affect the issue rating to the same extent.
Any change in Sri Lanka’s sovereign rating, or in the perception of state support to BOC, could result in a change in the ratings of BOC. Visible demonstration of preferential support for BOC in the form of an explicit guarantee will be instrumental to an upgrade of its National Long-Term Rating.