February 28, 2017 / 3:46 PM / 7 months ago

Fitch Affirms Ceylon Dollar Bond Fund at 'B+f/S5'

(The following statement was released by the rating agency) LONDON/COLOMBO, February 28 (Fitch) Fitch Ratings has affirmed Ceylon Dollar Bond Fund's International Fund Credit Quality Rating at 'B+f' and Fund Market Risk Sensitivity Rating at 'S5'. The fund is managed by Ceylon Asset Management (CAM). KEY RATING DRIVERS The affirmation of the 'B+f' International Fund Credit Quality Rating is driven by the weighted-average rating factor (WARF), the fund's rating distribution and its investment guidelines. The fund has a limited investment space, as it only invests in US dollar bonds issued by the government of Sri Lanka (B+/Stable), licensed banks in Sri Lanka and Sri Lankan corporates that are rated by an international rating agency. This restricts potential investments to 15 listed issuances totalling around USD10bn as well as Sri Lanka Development Bonds (SLDBs) of around USD4bn. SLDBs are unlisted, unrated US dollar bonds issued by the government domestically. The affirmation of the Fund Market Risk Sensitivity Rating is driven by the market risk factor as well as Fitch's consideration of qualitative factors, such as the fund manager's ability to extend duration above current levels if it sees fit. The rating also reflects Fitch's conservative assumptions about potential volatility in emerging market debt. ASSET CREDIT QUALITY The fund's portfolio comprises of four bonds - all rated 'B+' - that have been issued by the entities detailed above and is mainly exposed directly to government and to government-guaranteed debt. The fund currently has a large cash balance (19% of portfolio), which the manager expects to invest in the near-term and maintain around 5%-6% of the portfolio in short term US-dollar fixed deposits in a licensed commercial bank in Sri Lanka. CONCENTRATION The portfolio is concentrated and has a large exposure to Sri Lankan sovereign risk. The concentration risk is a structural feature given the limited opportunities in the fund's investment universe. Fitch has conducted stress tests on the target portfolio. Based on its analysis, Fitch believes the fund has considerable capacity to withstand negative rating migration in its investments before it would be downgraded to the 'CCC' category. PORTFOLIO SENSITIVITY TO MARKET RISK The Fund Market Risk Sensitivity Rating is based on an analysis of the fund portfolio's interest-rate and spread duration. Based on the fund's market risk factor alone, it could achieve a 'S4' Fund Market Risk Sensitivity Rating. However, in affirming the rating at 'S5', Fitch has also taken into consideration wider market conditions - such as potential volatility in emerging market debt - in its rating decision as well as recognising that the fund manager does have discretion to extend duration above current levels if it sees fit. According to Fitch's criteria, funds rated 'S5' are considered to have high sensitivity to market risk. On a relative basis, total returns or changes in net asset value are expected to experience extreme variability across a range of market scenarios due to substantial exposure to interest-rate, credit spread and other risk factors. The fund currently has a weighted-average life of 1.3 years due to the large cash balance it maintains in short-term deposits. The fund will rely on secondary market liquidity to meet large redemption requests. However, it has access to an overdraft facility of up to 10% of assets under management and requires 14 days' notice on redemptions above 3% of the fund. On the asset side, it holds only a limited proportion of outstanding debt issues, all of which are listed on the Singapore Exchange. FUND PROFILE The fund is regulated by the Securities and Exchange Commission of Sri Lanka under the Unit Trust Code, 2011. Deutsche Bank Sri Lanka, a branch of Deutsche Bank AG (A-/RWN/F1), is the trustee. THE ADVISOR Fitch considers CAM suitably qualified, competent and capable of managing the fund. The investment committee has relevant experience and the company has sufficient sources of information on which to base its decision-making process. Fitch considers the systems supporting the fund's investment activities to be satisfactory. CAM is 21%-owned by Sri Lanka Insurance Corporation Limited (SLIC, B+/Stable), 69% by Ceylon Capital Trust (Pvt) Ltd and 10% by Commercial Credit and Finance PLC (CCF). Fitch believes CAM has shareholder support, but a key challenge will be demonstrating sustained growth in assets under management. The Ceylon Dollar Bond Fund is a key component of its growth strategy. CAM has been managing funds since 1999. The current management team has been in place since 2005 and SLIC and CCF invested in the business in 2010 and 2013, respectively. RATING SENSITIVITIES The ratings may be sensitive to changes in the fund's credit quality or market risk profile. The International Fund Credit Quality Rating may be downgraded if Fitch downgrades the rating of the Sri Lankan sovereign or the ratings of the banks in which the fund has invested assets, especially the banks whose issues are not government guaranteed. An upgrade of the assets in the fund's portfolio could lead to an upgrade of the fund. Changes in exchange-control regulations that could increase the fund's transfer and convertibility risks or a weakening in the liquidity inherent in the fund or changes to liquidity provisions - such as the manager's ability to borrow against the fund's net assets or its ability to delay redemptions - would be viewed as negative. To maintain the bond fund ratings, CAM will provide Fitch with portfolio information, including details of the portfolio's holdings and credit quality. Fitch closely monitors the credit composition of the portfolio, the credit counterparties used by the manager and the overall market risk profile of the investments. Contact: Primary Analyst Alastair Sewell, CFA Senior Director +44 203 530 1147 Fitch Ratings Ltd 30 North Colonnade London E14 5GN Secondary Analyst Kanishka de Silva Analyst +941 1254 1900 Committee Chairperson Manuel Arrive, CFA Senior Director +33 144 299 177 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com; Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email: bindu.menon@fitchratings.com. Additional information is available on www.fitchratings.com The sources of information used to assess this rating were the public domain, CAM and Deutsche Bank. Applicable Criteria Global Bond Fund Rating Criteria (pub. 22 Aug 2016) here Additional Disclosures Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below