Fitch rates ComBank Sub Debt ‘AA-(lka)(EXP)’ | Sunday Observer

Fitch rates ComBank Sub Debt ‘AA-(lka)(EXP)’

Fitch Ratings has assigned Commercial Bank of Ceylon PLC’s (CB, AA(lka)/Stable) proposed Basel III-compliant subordinated unsecured debentures an expected National Long-Term Rating of ‘AA-(lka)(EXP)’.

The debentures will total Rs. 15 billion, with maturities of five and 10 years, and carry fixed coupons.

The debentures will qualify as Basel III-compliant regulatory Tier 2 capital for the bank and include a non-viability clause, under which they would convert to ordinary shares if determined by the Monetary Board of Sri Lanka.

The debentures will be listed on the Colombo Stock Exchange.

The bank plans to use the proceeds to support its loan book expansion, strengthen its Tier 2 capital base and reduce maturity gaps. The final rating is subject to the receipt of final documentation conforming to information received.

Fitch rates the proposed Tier 2 instruments one notch below CB’s National Long-Term Rating to reflect the notes’ subordinated status and higher loss-severity risks relative to senior unsecured instruments.

The notes would convert to equity upon the occurrence of a trigger event, as determined by the Monetary Board of Sri Lanka.

CB’s National Long-Term Rating is used as the anchor rating for the proposed instrument, as it reflects the bank’s stand alone financial strength and best indicates the risk of the bank becoming non-viable.

Fitch has not applied additional notching to the proposed notes for non-performance risk, as the proposed notes do not have going-concern loss-absorption features, in line with the agency’s criteria.