SINGER FINANCE (LANKA) PLC
Fitch Ratings has downgraded
We have also placed the National Long-Term Ratings of three other Fitch-rated Sri Lankan finance and leasing companies (FLCs) -
Fitch thinks some rated Sri Lankan corporates are more affected by the challenging macroeconomic environment stemming from the sovereign's distressed credit profile. We believe there is significant downside risk to our assessment of the corporate parents' ability to extend timely support to their Fitch-rated finance and leasing subsidiaries amid the additional pressure on the economy.
Fitch previously placed 13 Sri Lankan banks and 12 Sri Lankan non-bank financial institutions on RWN.
Key Rating Drivers
SFL's downgrade follows the downgrade of the National Long-Term Rating of its parent,
The RWN on AF, AMWCL, RPF and SFL reflects heightened downside risks to these financial institutions' ratings from the potentially weaker ability of their parents to provide timely liquidity support to these subsidiaries should there be a liquidity crunch in the financial system.
We believe these entities, similar to other peers in the sector, are prone to the risk of a change in creditor and market sentiment due to their high deposit concentration and significant reliance on wholesale funding. This, in turn, could put pressure on their parents to provide timely liquidity support, which is likely to be challenging in the weak operating environment and the stresses building up in the banking system.
This risk is exacerbated by the deteriorating sovereign credit profile (Long-Term Foreign-Currency Issuer Default Rating (IDR): RD, Long-Term Local-Currency IDR: CCC) and the ensuing risks to the stability of the financial system.
We aim to resolve the RWN in the next six months, depending on developments in the operating environment and the evolution of the FLCs' funding and liquidity positions, which could result in multiple notch downgrades.
These four entities' National Long-Term Ratings are driven by Fitch's expectation of support from their parents, underpinned by the parents' stake in the finance subsidiaries, sharing of brand names and the degree of integration and role in the group.
Unless noted above, the key rating drivers are those outlined in our previous published RACs for these four entities as follows.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The parents' weaker ability to provide support to their finance subsidiaries, as signaled through a downgrade of the parents' National Long-Term Ratings or delay in providing required support on a timely manner due to an economy-wide issue, for example, liquidity drying up in the banking system, could lead to negative action.
The ratings may also be downgraded if we perceive a deterioration in the parents' propensity to support their finance subsidiaries due to weakening links.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
There is limited scope for upward rating action given the RWN in the near term. In the longer run, an improvement in the parents' credit profiles could lead to an upgrade on these support-driven financial institutions' National Long-Term Ratings.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
SENIOR UNSECURED DEBT
The rating on SFL's senior unsecured debt is in line with its National Long-Term Rating, as the debt constitutes unsubordinated obligations of the company.
SUBORDINATED UNSECURED DEBT
SFL's Sri Lankan rupee-denominated subordinated debentures are rated two notches below its National Long-Term Rating to reflect their subordination to senior unsecured obligations. Fitch's baseline notching of two notches for loss severity reflects our expectation of poor recovery. There is no additional notching for non-performance risk.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
DEBT RATING
SFL's senior unsecured debt and subordinated unsecured debt ratings will move in tandem with the National Long-Term Rating.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
SFL's senior unsecured debt and subordinated unsecured debt ratings will move in tandem with the National Long-Term Rating.
Issuer Disclosure on Regulatory Action
As at
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
The ratings of AF, AMWCL, RPF and SFL are driven by institutional support from their parents.
RATING ACTIONS
Entity / Debt
Rating
Prior
Natl LT
A-(lka)
Downgrade
A(lka)
senior unsecured
Natl LT
A-(lka)
Downgrade
A(lka)
subordinated
Natl LT
BBB(lka)
Downgrade
BBB+(lka)
Natl LT
A-(lka)
Rating Watch On
A-(lka)
Natl LT
BBB+(lka)
Rating Watch On
BBB+(lka)
Natl LT
AA-(lka)
Rating Watch On
AA-(lka)
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VIEW ADDITIONAL RATING DETAILS
This report was prepared by Fitch in English only. The company may prepare or arrange for translated versions of this report. In the event of any inconsistency between the English version and any translated version, the former shall always prevail. Fitch is not responsible for any translated version of this report.
Additional information is available on www.fitchratings.com
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.
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