Sri Lanka’s Melsta Regal Finance rating watch revised after Fairfax take-over
ECONOMYNEXT – Fitch Ratings said an ‘A+(lka)’ rating of Sri Lanka’s Melsta Regal Finance has been revised to ‘evolving’ from ‘negative’ after Fairfax Financial Holdings of Cananda said it was taking over the firm.
"The Rating Watch Evolving reflects the uncertainty of the announced acquisition’s impact on MRF’s rating," Fitch said.
"We believe Fairfax has the ability to provide extraordinary support to MRF if required, but there is a lack of clarity on the probability of support from Fairfax and MRF’s importance to its new ultimate parent."
A Fairfax led consortium said it will pay 2.5 billion rupees to Melstacorp Plc, to buy 100 percent of Melta Regal Finance though Bluestone1 (Pvt) Ltd.
The full statement is reproduced below:
Fitch Revises Rating Watch on Melsta Regal Finance to Evolving from Negative
Fitch Ratings-Colombo-05 April 2018: Fitch Ratings has revised the Rating Watch on Melsta Regal Finance Ltd’s (MRF) National Long-Term Rating of ‘A+(lka)’ to Evolving from Negative.
The rating action follows the announcement dated 2 April 2018 that a consortium led by Fairfax Financial Holdings Limited of Canada (Fairfax) will acquire 100% of the equity in Sri Lanka-based MRF from its current parent, Melstacorp PLC (MC) for LKR2.5 billion. Fairfax will be the single largest shareholder of MRF after the completion of the transaction with effective control of 70% of the company via Bluestone1 (Private) Limited, a special purpose vehicle established for the acquisition of MRF.
MRF’s rating of ‘A+(lka)’ was driven by Fitch’s expectation of support from the Melstacorp group through parent MC. However, Fitch believes that support from MC can no longer be relied upon.
KEY RATING DRIVERS
The Rating Watch Evolving reflects the uncertainty of the announced acquisition’s impact on MRF’s rating. We believe Fairfax has the ability to provide extraordinary support to MRF if required, but there is a lack of clarity on the probability of support from Fairfax and MRF’s importance to its new ultimate parent.
MRF’s rating will be reassessed in the event that support from Fairfax cannot be relied upon, and will be downgraded by multiple rating categories to its standalone level, which is materially weaker than the current support-driven National Long-Term Rating.
MRF’s rating could be upgraded if Fitch determines that Fairfax would be willing to provide extraordinary support to MRF, if required.
The National Long-Term Rating would most likely be downgraded, possibly to MRF’s standalone profile, if the agency views that Fairfax’s support cannot be relied upon. This is likely to see MRF downgraded to the ‘B’ category on the National Rating scale.