Fitch revises expected rating on HNB Finance’s sub-debt to ‘BBB+(EXP)(LKA)’

Fitch Ratings yesterday said it had revised the expected National Long-term Rating on HNB Finance Limited’s (HFL, A(lka)/stable) proposed rupee-denominated subordinated unsecured debentures to ‘BBB+(EXP)(LKA)’ from ‘A-(EXP) (lka)’ following the publication of Exposure Draft: Non-bank Financial Institutions Rating Criteria and Exposure Draft: Bank Rating Criteria on November 15, 2019, under which the debentures are rated.

The proposed debentures total Rs.2 billion with a maturity of five years and carry fixed coupons.

The company plans to use the proceeds to strengthen its Tier II capital base and support loan-book expansion. The proposed debentures are to be listed on the Colombo Stock Exchange.

Fitch said the final rating is subject to the receipt of final documentation conforming to information already received.

The proposed subordinated debentures are rated two notches below HFL’S National Long-term Rating in line with the exposure drafts to reflect Fitch’s expectation of poor recoveries arising from the proposed debentures’ subordinated status. Fitch does not expect any regulatory action that would reduce losses on subordinated instruments.

HFL’S National Long-term Rating was affirmed on February 22, 2019. The rating reflects Fitch’s expectation that support would be forthcoming from Hatton National Bank PLC (HNB, Aa-(lka)/stable), which owns 51 percent of HFL and is involved in HFL’S strategic direction through board representation and the common HNB brand. The twonotch rating differential between the two entities reflects HFL’S limited role in the group.

HFL is engaged mainly in microfinance, which is not a major product for HNB. Furthermore, there is limited operational integration between the entities.