Fitch Ratings has assigned Commercial Bank of Ceylon PLC's (COMB; AA-(lka)/Stable) proposed Sri Lankan rupee-denominated Basel III-compliant subordinated green bonds of up to LKR15 billion an expected National Long-Term Rating of 'A(EXP)(lka)'.
The proposed bonds, which will mature in five, seven and ten years, will be listed on the Colombo Stock Exchange. The bank plans to use the proceeds to strengthen its Tier 2 capital base as well as to expand the bank's green lending portfolio.
The bank expects the proposed bonds to qualify as Basel III-compliant regulatory Tier 2 capital. The debentures include a non-viability clause that states they will convert to ordinary voting shares upon the occurrence of a trigger event, as determined by the Governing Board of the Central Bank of Sri Lanka.
The final rating is subject to the receipt of final documentation conforming to information already received.
Key Rating Drivers
Fitch rates the proposed Basel III Tier 2 bonds two notches below the bank's National Long-Term Rating of 'AA-(lka)'. 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.
COMB's National Long-Term Rating is used as the anchor rating for this instrument because the rating reflects the bank's standalone financial strength and best indicates the risk of the bank becoming non-viable.
For details of the key rating drivers and rating sensitivities of COMB's National Long-Term Rating, see Fitch Upgrades 10 Sri Lankan Banks' National Ratings and Affirms Five after Scale Recalibration, published on 21 January 2025.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
A downgrade of the bank's National Long-Term Rating will lead to a downgrade of the expected subordinated debt rating.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
An upgrade of the bank's National Long-Term Rating will lead to an upgrade of the expected subordinated debt rating.
