Fitch rates ComBank’s debenture issue up to Rs.12bn two notches below bank’s rating

 Fitch Ratings has assigned BBB+(EXP)(lka) for the upcoming Basel III-compliant subordinated debentures of Commercial Bank of Ceylon PLC up to Rs.12 billion and placed it on Rating Watch Negative (RWN).
The rating is two notches below ComBank’s National Long-Term Rating of ‘A(lka)’, which is on RWN.
“This reflects Fitch’s baseline notching for loss severity for this type of debt and our expectations of poor recoveries. There is no additional notching for non-performance risks, as the proposed notes do not incorporate going-concern loss-absorption features,” Fitch said.
The proposed debentures, which will have maturities of five, seven and 10 years, will be listed on the Colombo Stock Exchange. 
The bank plans to use the proceeds to further strengthen its Tier 2 capital base, raise long-term funding and bridge maturity mismatches 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 will convert to ordinary voting shares subject to the occurrence of a trigger event, as determined by the Monetary Board of Sri Lanka. 
Fitch said the final rating on the debenture issue would be subject to the receipt of final documentation conforming to information already received.