Fitch upgrades Ideal Finance’s rating after acquisition by India’s Mahindra

Fitch Ratings has upgraded Sri Lanka-based Ideal Finance Limited’s National Long-Term Rating to ‘AA-(lka)’, from ‘BB-(lka)’ and removed the rating from Rating Watch Positive (RWP). The Outlook is Stable.

The upgrade follows the completion of the progressive acquisition of a 58.2 percent stake in Ideal by India’s Mahindra & Mahindra Financial Services Limited (MMFSL) in July 2021.

Ideal’s National Long-Term Rating reflects Fitch’s expectation of extraordinary support from the parent, MMFSL, based on Fitch’s assessment of MMFSL’s ability to provide support, if needed. The rating also takes into consideration MMFSL’s majority stake in Ideal and the potential for closer alignment of branding.

Fitch assesses Ideal to be of limited importance to MMFSL, due to the nascent role in the group that is yet to be tested and still limited integration. Furthermore, 

Fitch believes that reputational damage to MMFSL could be contained, considering the different jurisdictions of the entities. MMFSL’s investment has diluted the stake of former major shareholder Ideal Motors but the stake remains sizeable.

MMFSL is a 52 percent-owned subsidiary of Mahindra & Mahindra Limited (M&M) and is the largest financier for M&M’s vehicles. MMFSL’s investment in Ideal is also aimed at supporting the sales of the M&M vehicles in the Sri Lankan market. Ideal’s intrinsic financial strength is assessed to be significantly weaker than its support-driven rating.