MBSL’s subordinated debt assigned final ‘BBB+(lka)’ by Fitch

Fitch Ratings has assigned Merchant Bank of Sri Lanka & Finance PLC’s (MBSL, A(lka)/Stable) proposed subordinated debentures of up to Rs.1 billion a final National Long-Term Rating of ‘BBB+(lka)’.

The final rating is in line with the expected rating published on May 2, 2025 and follows the receipt of documents conforming to information already received.

The proposed Sri Lankan 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.

MBSL’s Sri Lankan rupee-denominated subordinated debentures are rated two notches below its National Long-Term Rating. Fitch said it applied the Bank Rating Criteria in rating this instrument, as it believes 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,” said Fitch.

MBSL’s National Long-Term Rating was upgraded to ‘A(lka)’, from ‘BBB+(lka)’ on January 24, 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 its expectation that BOC would provide extraordinary support to the subsidiary if required. This view is based on BOC’s 84.5 percent stake, history of equity support, control over MBSL’s policies and strategies through board representation and known links between BOC and MBSL.