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Cash rich National Savings Bank bought up Rs. 60 mn worth of securitised paper last week, locking its returns for up to one year. Ceylease Financial Services and People’s Merchant Bank issued the lease-backed securities in a bid to expand its fund base.
PMB plans to plough most of the funds into its profitable leasing business.
The securitized paper is backed by a quality lease portfolio, with tenures starting from three to 12 months.
The BBB- (sri) rated Ceylease, which has traditionally relied on the Bank of Ceylon for finance, earlier raised Rs. 100 mn through a similar issue last year.
However, the bank’s relationship with Ceylease is on commercial terms. As at Dec 2003, 72 percent of the borrowings were from Bank of Ceylon, says Fitch Ratings in its rating analysis.
Ceylease was set up in 1996 as a specialised leasing company owned by Bank of Ceylon (50 percent), Brandix Group (30 percent), Union Assurance (10 percent) and ESOP (10 percent).
As a new entrant to the leasing market, Ceylease has been focusing on the equipment leasing. As at Dec 2003, equipment leases accounted for 35 percent of leased assets, with vehicle leases making up the remainder says Fitch.
This is in contrast with other leasing financiers, where over 80 percent to 90 percent of the portfolio is motor vehicles.
Credit concentrations are relatively high within the lending portfolio. The single largest client accounted for 16 percent of equity in Dec 2003 (24 percent in June 2003) while the top 10 customers (with exposure of 10 percent of equity or more) accounted for 134 percent of equity in total.
"The high credit concentrations are a concern, given the high absolute exposures and Ceylease’s relatively low capital level."
The potential credit risk stemming from the high credit concentrations is further aggravated by the characteristics of Ceylease lease portfolio.
The relatively high exposure to equipment, (which includes specialized types of equipment as well) could result in higher credit costs compared to motor vehicles due to possible difficulties in realising the value of equipment in the secondary market.
However, some of the higher lending is channeled towards the Tea sector, which is one of Sri Lanka’s oldest and most established industries. As such, a ready secondary market is available for repossessed leased equipment.
Further, Ceylease has been able to dispose of equipment repossessed from the tea industry with relative ease without incurring substantial losses.
-LBO Newsdesk: LBOEmail@vanguardlanka.com