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Fitch Ratings has assigned Commercial Bank of Ceylon PLC’s (COMB; AA-(lka)/Stable) proposed Sri Lankan rupee-denominated Basel III-compliant subordinated green bonds of up to LKR15 billion a final National Long-Term Rating of ‘A(lka)’.
The final rating is the same as the expected rating assigned on 7 April 2025 and follows the receipt of documents conforming to information already received.
Key Rating Drivers
The proposed bonds, which will mature in five, seven and 10 years, will be listed on the Colombo Stock Exchange. The bank plans to use the proceeds to strengthen its Tier 2 capital base as well as to expand the bank’s green lending portfolio.
The proposed bonds will qualify as Basel III-compliant regulatory Tier 2 capital. The debentures include a non-viability clause that states they will convert to ordinary voting shares upon the occurrence of a trigger event, as determined by the Governing Board of the Central Bank of Sri Lanka.
Fitch rates the proposed Basel III Tier 2 bonds two notches below the bank’s National Long-Term Rating of ‘AA-(lka)’. This reflects Fitch’s baseline notching for loss severity for this type of debt and our expectations of poor recoveries. There is no additional notching for non-performance risks, as the proposed notes do not incorporate going-concern loss-absorption features.
COMB’s National Long-Term Rating is used as the anchor rating for this instrument because the rating reflects the bank’s standalone financial strength and best indicates the risk of the bank becoming non-viable.
Fitch upgraded COMB’s National Long-Term Rating on 21 January 2025; see Fitch Upgrades 10 Sri Lankan Banks’ National Ratings and Affirms Five after Scale Recalibration, published on 21 January 2025
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
A downgrade of the bank’s National Long-Term Rating would lead to a downgrade of the subordinated debt rating.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
An upgrade of the bank’s National Long-Term Rating would lead to an upgrade of the subordinated debt rating.