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Tuesday April 23rd, 2024

Fitch affirms Sri Lanka’s AMW Capital Leasing and Finance at ‘BBB(lka)’

ECONOMYNEXT – Fitch Ratings said it has affirmed AMW Capital Leasing And Finance PLC’s (AMWCL) National Long-Term Rating at ‘BBB(lka)’. The outlook remains negative.

“AMWCL’s rating reflects our expectation that its parent, Associated Motor Ways (Pvt) Limited (AMW), would provide extraordinary support to the finance subsidiary, if required,” Fitch said.

“The Negative Outlook on AMWCL’s rating reflects the pressure stemming from its parent’s credit profile. A prolonged ban on vehicle imports continues to impede AMW’s core business of vehicle importation and sales, weakening its earnings capacity and liquidity position.”

AMW was one of Sri Lanka’s largest vehicle importers prior to the curbs. Sri Lanka has gradually rolled back import restrictions limited vehicle classes, but curbs remain on AMW’s primary segment – passenger cars, Fitch said.

The full statement is reproduced below:

Fitch Affirms AMW Capital Leasing and Finance at ‘BBB(lka)’; Outlook Remains Negative

Fitch Ratings – Colombo – 07 Mar 2024: Fitch Ratings Lanka has affirmed AMW Capital Leasing And Finance PLC’s (AMWCL) National Long-Term Rating at ‘BBB(lka)’. The Outlook remains Negative.

KEY RATING DRIVERS
Shareholder Support Drives Rating: AMWCL’s rating reflects our expectation that its parent, Associated Motor Ways (Pvt) Limited (AMW), would provide extraordinary support to the finance subsidiary, if required. Our assessment takes into account AMW’s 90% ownership, shared branding and integration in setting the strategic agenda for AMWCL.

Weakening Parental Ability to Support: The Negative Outlook on AMWCL’s rating reflects the pressure stemming from its parent’s credit profile. A prolonged ban on vehicle imports continues to impede AMW’s core business of vehicle importation and sales, weakening its earnings capacity and liquidity position. AMW was one of Sri Lanka’s largest vehicle importers prior to the curbs. Sri Lanka has gradually rolled back import restrictions limited vehicle classes, but curbs remain on AMW’s primary segment – passenger cars.

Relative Size a Constraint: AMWCL’s rating is constrained by our view that any required support from the parent could be considerable relative to AMW’s ability to provide it – given the strain on AMW’s credit profile from challenges to its core business. AMWCL has a sizeable large balance sheet relative to that of its parent.

Greater Back-End Coordination: We believe the parent has an influence on AMWCL’s business strategy and maintains oversight of its execution beyond the board level. The company has broadened its operational integration to several support functions that coordinate with the group back-office hub as well as increased management integration via senior management secondments.

Weak Standalone Credit Profile: We believe AMWCL’s standalone credit strength is weaker than its support-driven rating. This stems from its small market share, at less than 1% of total finance and leasing company industry assets, as well as lingering asset quality and profitability risks, as the economy emerges from a highly challenging few years. That said, we expect asset quality pressure to recede, supported by a resumption in economic activity and focused recoveries.

Profitability to Recover: We expect profitability to pick up in the near- to medium-term as lending resumes. AMWCL reported a pre-tax profit to average assets ratio of 1.3% in 2023, down from 4.4% in 2022, due to a thinner net interest margin, high operating costs and a shrinking loan book.

Leverage to Increase: We expect leverage to rise in the near- to medium-term along with anticipated loan book growth. Nonetheless, debt/tangible equity remained among the lowest of Fitch-rated peers, at 0.8x, at end-2023 (end-2022: 1.4x), as the company released excess deposits amid muted lending prospects.

Improved Standalone Liquidity: Liquid asset holdings more than doubled to 35.8% of total assets in 2023 (2022: 15.3%), as loan growth remained subdued. We expect the share of liquid assets to diminish as lending resumes. That said, AMWCL’s unsecured debt/total debt ratio remains among the lowest of Fitch-rated finance and leasing companies, due to its moderate appetite for deposit funding relative to wholesale funding.

RATING SENSITIVITIES

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

AMWCL’s rating is sensitive to changes in AMW’s credit profile, as well as Fitch’s opinion around the parent’s ability and propensity to extend timely extraordinary support.

– a worsening in AMW’s liquidity position that reduce its flexibility to provide timely support to AMWCL

– reduced ownership, control or influence of AMWCL that weakens AMW’s propensity to support the subsidiary

– insufficient or delayed liquidity support from AMW that hinders AMWCL’s ability to meet its obligations in a timely manner

A significant weakening in AMW’s perceived ability or propensity to support AMWCL could result in Fitch rating the subsidiary based on its standalone credit profile, which would lead to a multiple notch downgrade.

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

A significant improvement in the parent’s credit profile could lead to an upgrade at AMWCL, assuming other support factors remain intact. We may also upgrade the rating if AMWCL’s strategic contribution to its parent increases significantly, through improving synergies, such as cross-selling with the parent’s core motor-vehicle business, or a sustainable improvement in profitability. However, we do not expect such changes in the near term.

We may revise the Outlook to Stable should pressure on AMW’s credit profile ease and make any extraordinary support less onerous for the parent.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
AMWCL’s rating is linked to the credit profile of AMW, its parent.

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Iran President to open Sri Lanka $514mn irrigation, hydro power project

MULTIPURPOSE: Uma Oya multipurpose development project is the largest since the end of the Mahaweli projects.

ECONOMYNEXT – Iran President Seyyed Ebrahim Raisi will inaugurate an irrigation and hydropower project that was designed and built by Iranian engineering firm and was also initially financed before international sanctions hit the project.

The Uma Oya (River) project will irrigate 4,500 acres of new agricultural land, generate 290 Gigawatt hours of electricity and also provide drinking water, a government statement said.

Sri Lanka had awarded an engineering, procurement, construction (EPC) to Iran’s FARAB engineering group to design and construct the 514 million dollar multipurpose project in 2010.

The project was funded until 2013 with a million US dollar credit from the Export Development Bank of Iran but international sanctions prevented the country from continuing financing, a government statement said.

The project continued with funding from Sri Lanka. Sri Lanka had since repaid 19.3 million dollars of the credit and 35.2 million remains outstanding.

The Uma Oya project has a 120MW of hydro power generators, which can generate 290 Giga Watt hours of energy.

Each year 145 million cubic metres of water will be taken from Uma Oya to the Kirindi Oya river valley after generating electricity in an underground power station.

It will irrigate 1,500 hectares of existing agricultural and 4,500 hectares of new land in the Moneragala district, where crops can be cultivated in both the Maha and Yala seasons.

About 39 million cubic meters of water will be used for drinking and industrial purposes.

Two reservoirs built at Dyraaba and Puhulpola in Uma Oya basin is connected by a 3.98 kilometre conveyance tunnel and water is taken through a 15.2 kilomtre headrace tunnel to an underground power station. A tailrace tunnel takes water from the power station to the Kirindi Oya basin.

The project was originally expected to be completed in 2015, but due to financing delays and later water leaking into the headrace tunnel and the Covid pandemic had delayed it. The project completion date was extended to March 31, 2024 and defect liability date to March 31, 2025.

(Colombo/April23/2024 – CORRECTED Iran President Seyyed Ebrahim Raisi will inaugurate an irrigation and hydropower project that was designed and built by Iranian engineering firm.)

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Sri Lanka state oligopoly allowed to import some black gram

ECONOMYNEXT – Sri Lanka has allowed the import of some black gram, by three state agencies, according to a gazette notice issued under the hand of President Ranil Wickremesinghe.

Import licenses will be given for 2,000 metric tonnes of the seed classified under HS Code 7312.31.22 and 29.

Sri Lanka State Trading Corporation, National Food Promotion Board and Sri Lanka Hadabima Authority is to be given import licenses.

Traders have resorted to smuggling some types of black gram (ulundu) mis classified as chick peas, to get over high taxes and import restrictions.

Tamil legislators have also protested the import controls, which they go into several key ethnic foods they consume. (Colombo/Apr23/2024)

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Sri Lanka Foreign Ministry consular division shifted to Battaramulla

ECONOMYNEXT – Sri Lanka’s Foreign Ministry said it consular division would be shifted to the Suhurupaya building in Subuthipura, Battaramulla from May 02, 2024.

Document authentication services provided by the Consular Affairs Division in Colombo will be suspended on 29 and 30 April 2024 held transfer the Electronic Document Authentication System (e-DAS) to the new premises at Suhurupaya.

Urgent applications for authentication to the Consular Division in Colombo, or any Regional Consular Offices by 4.15 pm on 26 April 2024, the Foreign Ministry said.

Regional Consular Offices in Jaffna, Trincomalee, Kurunegala, Kandy and Matara will remain open to accept applications.

Authenticated documents will be delivered to the applicants only on Thursday, 02 May 2024.

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