Evolving Watch

July 27, 2011 (LBO) - Sri Lanka's Ceylease Financial Services Ltd's (CFSL), a unit of the state-run Bank of Ceylon group rated 'BB+(lka)' has been placed on 'rating watch evolving' by Fitch Ratings Ltd ahead of a possible merger. "Conversely, a decrease in BOC's effective shareholding through, for example, a divestment of the merged entity and disassociation with the BOC franchise may lead to a downgrade."

The full Fitch statement is reproduced below.

Fitch Ratings-Colombo/Singapore : Fitch Ratings Lanka has placed Ceylease Financial Services Ltd's (CFSL) National Long-Term 'BB+(lka)' rating on Rating Watch Evolving (RWE).

The rating action follows Merchant Bank of Sri Lanka Plc's (MBSL) announcement on 4 May 2011 that the Central Bank of Sri Lanka has provided "in-principle approval" for the issue of a specialised banking license to MBSL. The license is subject to a merger between CFSL (55%-owned by Bank of Ceylon (BOC; 'AA(lka)'/Positive) group), MBSL (effective ownership of 72% by BOC group), Merchant Credit of Sri Lanka Ltd ('BBB(lka)'/RWE, effective ownership of 86% by BOC group) and MBSL Savings Bank Ltd (effective ownership of 49% by BOC group).

The RWE reflects uncertainty regarding the modaliti