Fitch Ratings has assigned Nations Trust Bank PLC’s (NTB, A(lka)/Stable) proposed Basel III-compliant subordinated unsecured debentures an expected National Long-Term Rating of ‘A-(lka)(EXP)’.
The proposed debentures will total up to Rs 3.5 billion, with maturities of five years, and will be listed on the Colombo Stock Exchange. They will qualify as Basel III-compliant regulatory Tier 2 capital for the bank and include a non-viability clause whereby they will convert to ordinary shares if so determined by the Monetary Board of Sri Lanka. The bank plans to use the proceeds to strengthen its Tier 2 capital base and for medium-term funding.
The final rating is subject to the receipt of final documentation conforming to information already received. Fitch rates the proposed Tier 2 instrument one notch below NTB’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.
NTB’s National Long-Term Rating is used as the anchor rating for the proposed instrument, as it reflects the bank’s standalone 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. NTB’s National Long-Term Rating was affirmed on June 26, 2018 and reflects its higher-than-peer product concentration, improved capitalisation and modest franchise.
The rating of NTB’s proposed Basel III compliant notes will move in tandem with its National Long-Term Rating.
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