FINANCIAL CHRONICLE – Fitch Ratings has assigned a final National Long-Term Rating of ‘A(lka)’ to the proposed 1 billion rupee subordinated listed debentures of Sri Lanka’s non-bank financial institution, Mahindra Ideal Finance Limited. According to Fitch, the application of their Bank Rating Criteria is justified as the prudential capital framework of Sri Lankan finance companies closely aligns with that of banks.
The debentures, set to mature in five years, will be listed on the Colombo Stock Exchange. The funds raised from this issuance are intended to bolster Mahindra Ideal Finance’s Tier 2 capital base and facilitate business expansion.
Key Rating Drivers
The proposed debentures are rated two notches below Mahindra Ideal Finance’s National Long-Term Rating. This rating reflects anticipated loss severity for this class of debt and an expectation of poor recoveries in the event of default. Fitch applied its Bank Rating Criteria based on the belief that the prudential capital framework for Sri Lankan finance companies is nearly equivalent to that of banks. The debentures carry no additional notching for non-performance risk, as they do not include going-concern loss-absorption features.
Mahindra Ideal Finance’s National Long-Term Rating was affirmed at ‘AA-(lka)’ with a Stable Outlook on February 28, 2025. This rating indicates Fitch’s expectation of possible extraordinary support from the parent company, India-based Mahindra & Mahindra Financial Services Limited, if necessary. However, Fitch views Mahindra Ideal Finance as having limited importance to the parent company due to its emerging role within the group and the short period since its acquisition. Further details are available in the published commentary, “Fitch Affirms Mahindra Ideal Finance at ‘AA-(lka)’; Outlook Stable.”
Rating Sensitivities
Factors that Could Lead to Negative Rating Action/Downgrade: A downgrade of Mahindra Ideal Finance’s National Long-Term Rating would result in a downgrade of the final subordinated debt rating.
Factors that Could Lead to Positive Rating Action/Upgrade: An upgrade of Mahindra Ideal Finance’s National Long-Term Rating would lead to an upgrade of the final subordinated debt rating.
