Sri Lanka’s Mahindra Ideal Finance debt given ‘A(lka)’ rating by Fitch

Sri Lanka licensed non-bank financial institution Mahindra Ideal Finance Limited’s proposed 1 billion rupee subordinated listed debentures have been assigned a final National Long-Term Rating of ‘A(lka)’ by Fitch Ratings.

“We applied our Bank Rating Criteria to rate the proposed debentures, as we believe the prudential capital framework of Sri Lankan finance companies is close to that for banks,” the ratings agency said.

The full statement is reproduced below:

Fitch Assigns Mahindra Ideal Finance’s Proposed Subordinated Debt Final ‘A(lka)’ Rating

Fitch Ratings – Singapore/Colombo: Fitch Ratings has assigned Mahindra Ideal Finance Limited’s (MID, AA-(lka)/Stable) proposed Sri Lankan rupee-denominated subordinated listed debentures of up to LKR1 billion a final National Long-Term Rating of ‘A(lka)’.

The proposed debentures, which will mature in five years, will be listed on the Colombo Stock Exchange. The company plans to use the proceeds to strengthen its Tier 2 capital base and support business expansion.

Key Rating Drivers

The proposed debentures are rated two notches below MID’s National Long-Term Rating. This reflects our baseline notching for loss severity for this debt class and our expectation of poor recoveries in the event of default.

We applied our Bank Rating Criteria to rate the proposed debentures, as we believe the prudential capital framework of Sri Lankan finance companies is close to that for banks. There is no additional notching for non-performance risk, as the proposed debentures do not contain going-concern loss-absorption.

MID’s National Long-Term Rating was affirmed at ‘AA-(lka)’ with a Stable Outlook on 28 February 2025. The rating reflects Fitch’s expectation that the parent company, India-based Mahindra & Mahindra Financial Services Limited, would provide extraordinary support to MID if needed. We believe MID is of limited importance to the parent because of MID’s emerging role within the group and the short period since it was acquired. Details can be found in the published commentary, “Fitch Affirms Mahindra Ideal Finance at ‘AA-(lka)’; Outlook Stable”.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

A downgrade of MID’s National Long-Term Rating would lead to a downgrade of the final subordinated debt rating.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

An upgrade of MID’s National Long-Term Rating would lead to an upgrade of the final subordinated debt rating.

source: Economy Next