Fitch assigns Commercial Bank’s Basel III subordinated debt final ‘BBB+(lka)’

Fitch Ratings yesterday announced it has assigned Commercial Bank of Ceylon PLC’s (COMB, A(lka)/Stable) proposed Sri Lankan rupee-denominated Basel III-compliant subordinated debentures of up to Rs.20 billion a final National Long-Term Rating of ‘BBB+(lka)’.
The proposed debentures will mature in five, seven and 10 years and will be listed on the Colombo Stock Exchange. 
COMB plans to use the proceeds to further strengthen its Tier 2 capital base, reduce maturity mismatches in the balance sheet and support loan growth.

The bank expects the proposed debentures to qualify as Basel III-compliant regulatory Tier 2 capital. The debentures include a non-viability clause, whereby they convert to ordinary voting shares upon the occurrence of a trigger event, as determined by the Monetary Board of Sri Lanka.
COMB’s Sri Lankan rupee-denominated subordinated debt is rated two notches below the bank’s National Long-Term Rating anchor. 

This reflects Fitch’s baseline notching for loss severity for this type of debt and expectation of poor recoveries. There is no additional notching for non-performance risk, as the notes do not incorporate the going-concern loss-absorption features.
COMB’s National Long-Term Rating is used as the anchor rating for this instrument because it reflects the bank’s standalone financial strength and best indicates the risk of the bank becoming non-viable.
Last week, Fitch affirms Commercial Bank of Ceylon at ‘A(lka)’; Outlook Stable.