Fitch Ratings has assigned Sampath Bank PLC's (A(lka)/Stable) proposed Sri Lankan rupee-denominated Basel III-compliant subordinated debentures of up to LKR10 billion an expected National Long-Term Rating of 'BBB+(EXP)(lka)'.
The proposed debentures, which will mature in five years, will be listed on the Colombo Stock Exchange. The bank plans to use the proceeds to strengthen its Tier 2 capital base.
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 regulator.
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 notes two notches below the bank's National Long-Term Rating of 'A(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.
Sampath'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 on the key rating drivers and rating sensitivities of Sampath's National Long-Term Rating, see "Fitch Affirms Sampath Bank at 'A(lka)'; Outlook Stable", published on 22 July 2024.
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.