ECONOMYNEXT – Sri Lanka’s ‘A(lka)’ rated Ceylon Investment Fund has been placed on ‘rating watch negative’ by Fitch, over uncertain credit quality of assets rated by another firm which is no longer licensed by the regulator.
The license of Lanka Ratings Agency was not renewed by Sri Lanka’s Securities and Exchange Commission after asking it not to issue any new ratings in March.
Fitch said 32 percent of investments by Ceylon Income Fund was in LRA rated assets.
At the moment the fund had National Fund Credit Quality Rating of ‘A(lka)’.
"The Rating Watch Negative will be resolved if the assets that were previously rated by LRA reduce materially or if these assets are rated by another rating agency," the rating agency said in a statement.
"Fitch will review the Rating Watch in one month’s time."
The full statement is reproduced below:
Fitch Places Ceylon Income Fund on Rating Watch Negative
Fitch Ratings-Colombo-24 July 2015: Fitch Ratings has placed the National Fund Credit Quality Rating assigned to the Ceylon Income Fund of ‘A(lka)’ on Rating Watch Negative as there is uncertainty regarding the credit quality of a significant portion of the funds’ underlying assets.
KEY RATING DRIVERS
This action comes after the Securities and Exchange Commission of Sri Lanka (SEC) did not renew the licence of Lanka Rating Agency (LRA), which rated 32% of Ceylon Income Fund’s assets as at end-May 2015.
The SEC on 1 July 2015 issued a statement saying that LRA is not entitled to assess, evaluate or review the creditworthiness of listed securities or securities to be listed.
The fund’s Weighted Average Rating Factor was previously consistent with a National Fund Credit Quality Rating in the ‘A(lka)’ category. The fund primarily invests in corporate debt instruments and is managed by Ceylon Asset Management. The National Fund Volatility Rating is ‘V-NR’.
The Rating Watch Negative will be resolved if the assets that were previously rated by LRA reduce materially or if these assets are rated by another rating agency. Fitch will review the Rating Watch in one month’s time.