Proposed BOC dollar bond issue could be rated BB-

*Fitch: State-owned BOC rating outlooks stable
*Capitalisation weak
*Profitability low, operating cost base high
*Loans to deposits ratio 95%, management challenged to bring it down to 85%
 

Fitch Ratings has assigned Sri Lanka’s Bank of Ceylon (BOC) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) of ‘BB-’ with Stable Outlooks. Fitch has also assigned BOC a ‘b+’ Viability Rating (V/R). Simultaneously, BOC’s National Long-Term rating and its outstanding subordinated debentures have been affirmed at ‘AA+(lka)’ with a Stable Outlook and ‘AA(lka)’, respectively.


"Fitch has also assigned BOC’s proposed senior unsecured USD-denominated notes an expected rating of ‘BB-(exp)’, same as its Foreign Currency IDR. The size and tenor of the notes are yet to be determined. The final rating is contingent upon receipt of final documents conforming to information already received," the ratings agency said.


"BOC’s IDRs and National Long-Term ratings reflect Fitch’s expectation of support from the government of Sri Lanka (GoSL, ‘BB-’), if required, given its quasi sovereign status, high systemic importance and role as one of the main bankers to the government. BOC is the largest bank in Sri Lanka and fully owned by GoSL. Any change in Sri Lanka’s sovereign ratings would likely be reflected in the ratings of BOC.


"The V/R reflects BOC’s domestic franchise being underpinned by its sovereign linkages and extensive branch network, as well as its weak capitalisation, improving profitability, increasing loan/deposit ratio and concentration in the state sector (GoSL and state entities).


"While BOC’s IDRs and National Long-Term rating are closely correlated with Sri Lanka’s sovereign rating, an upgrade of BOC’s National Long-Term rating could result from a demonstration of preferential support for BOC. The V/R could be upgraded if BOC enhances its capital buffer substantially (including a high loan loss reserve coverage), the loan-deposit ratio is maintained/sustained at 80%-85% and/or supplemented by medium term wholesale funding, and operating performance and asset quality remain stable. The V/R could be downgraded if capital buffer weakens from continued high asset growth, or if a large asset quality downturn from domestic/external macroeconomic shocks leads to capital impairment.

BOC hires foreign banks to promote bond issue

Bank of Ceylon has hired several foreign banks to arrange bond investor meetings in Asia, Europe and the US ahead of a planned new bond issue, news wire agencies reported yesterday.


The state-owned banking giant is reported to have hired Bank of America Corp., Citigroup Inc. and HSBC Holdings to arrange bond investor meetings, according to Bloomberg news agency. LBO reported that other sources had indicated that top financial management firm Merril Lynch was also included.


The office of BOC Chairman Dr. Gamini Wickramasinghe told us the bank was not making an official statement, nor commenting on the proposed bond issue at the moment.