Moody’s affirms Sammaan Capital B2 rating, raises outlook to positive

Investing.com -- Moody’s Ratings has confirmed the B2 long-term corporate family rating of Sammaan Capital Limited. Simultaneously, the ratings of Sammaan Capital’s (P)B2 foreign and local currency senior secured medium-term note (MTN) program were maintained.

The ratings agency also upgraded the outlook on Sammaan Capital’s ratings from stable to positive.

The affirmation of Sammaan Capital’s ratings reflects the company’s strong capitalization and substantial loan loss buffers, which are expected to offset high asset risks. These strengths are counterbalanced by the company’s sluggish growth and moderate earnings. The affirmation also takes into account Sammaan Capital’s funding access, which is weaker than its peers.

The change in Sammaan Capital’s ratings outlook to positive from stable is in anticipation of the company continuing to decrease its legacy assets and enhance its overall asset quality. Between March 2024 and December 2024, gross nonperforming assets (GNPA) fell due to write-offs and the selling of problematic assets to asset reconstruction companies. As of December 2024, the reported GNPA as a percentage of assets under management improved to 1.1% from 2.7% as of March 2024.

However, the stressed assets pool, which includes GNPA, stage 2 and security receipts, grew during this period. Legacy assets still make up a significant portion of its on-balance sheet loans at about 40%. A reduction of the legacy assets, along with an improvement in overall asset quality, would be credit positive.

Sammaan Capital reported a loss in the nine months ended December 2024 due to substantial provisions made in the September 2024 quarter. It is anticipated that the lender will return to profitability in the subsequent quarters.

Despite some improvement, Sammaan Capital’s funding access continues to be modest. The lender’s funding costs are higher than its peers and borrowings are concentrated, with the top 10 lenders accounting for 73% of the lender’s total borrowings as of March 2024. While the company’s liquidity coverage ratio improved to 218% as of December 2024 from 81% a year earlier, it remains lower than some of its rated peers.

The potential for Sammaan Capital to transition to an asset-light model, which could enhance profitability and decrease future funding volatility, is a key factor for the ratings.

An upgrade to Sammaan Capital’s ratings could occur if the company continues to decrease its legacy assets while improving overall asset quality, improves earnings quality while maintaining the return on assets at 1.5%, and successfully transitions to an asset-light model, such as a sustained increase in assets under management that supports the company’s profitability. However, the upgrade would be contingent on the company maintaining capitalization above 25%.

Conversely, a downgrade of Sammaan Capital’s ratings could occur if the company sustains losses or if asset quality deteriorates, as indicated by an increase in nonperforming loans and significantly weaker loan loss buffers.

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