RAM Ratings Lanka has upgraded People’s Merchant Finance Company Ltd’s (PMFC) long-term financial institution rating by 4 notches, from B+ to BBB-, with a stable outlook. Its short-term rating has also been revised from NP to P3. Concurrently, the Rating Watch (with a developing outlook) on PMFC’s rating has been lifted.

The steep upward revision of the company’s ratings is premised on the financial flexibility derived from its new ultimate, state-owned parent, People’s Bank.

PMFC is a small registered finance company (RFC) that falls within the regulatory purview of the Central Bank of Sri Lanka (Central Bank). The company had an asset base of Rs 299.67 million as at end-March 2009.

In March 2009, People’s Merchant Bank (PMB) acquired 44.02 percent of PMFC.

About three months later, PMB raised its stake to 99.90percent, and renamed the company as PMFC. In mid-October, PMB announced that it intended to amalgamate the assets and liabilities of PMFC by FYE March 31, 2010.

PMB is an associate company of People’s Bank (which owns a 39.20 percent stake).

PMB’s shares are listed on the Colombo Stock Exchange. PMB is presently a small specialised leasing company (SLC), with an asset base of Rs 2.84 billion; it too comes under the regulatory umbrella of the Central Bank.

PMB’s largest funding source is its ultimate parent, PB. As at end-March 2009, the bank had extended Rs660 million of facilities to PMB. This accounted for around 45 percent of the latter’s bank borrowings. In addition, PMB has announced a rights issue for which its parent has already pledged support. PMB intends to raise Rs 250 million to retire its outstanding debentures and other short-term borrowings.