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Sri Lanka’s Melsta Regal Finance downgraded 10 notches after sale

ECONOMYNEXT – Melsta Regal Finance (MRF) has been downgraded 10 levels to ‘B(lka)’ from ‘A+(lka)’, after being placed on rating watch when it was sold to a unit of Fairfax Financial Holdings Limited by Sri Lanka’s Melstacorp group.

The outlook is stable.

Fitch said the earlier higher rating came from the support from its parent.

Fitch said support from the new parent Fairfax Financial Holdings Limited (Fairfax), cannot be relied upon.

"Fitch believes Fairfax’s stake in MRF is part of its portfolio of investments and does not have a strategic significance," the rating agency said.

"Fairfax is MRF’s largest shareholder, with effective control of 70% via Bluestone1 (Private) Limited, an SPV (special purpose vehicle) established for the acquisition of MRF.

Melsta Regal Finance is now rated on its stand alone profile which involves a small franchise of 0.5 percent of finance company sector assets at end March 2018.

"MRF’s ratings could be upgraded if the company increased its operating scale while maintaining asset quality and capitalisation at levels of higher-rated peers," Fitch said.

"However, a significant reduction in loss absorption buffers owing to asset-quality slippage could lead to a rating downgrade."  (Colombo/July17/2018 – This story was corrected to show that Melsta Regal had been downgraded 10 notches, not 8.





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