logo
Lanka Rating Agency
Press Release

Date
30-Dec-21

Analyst


Rabiya tul Athaviya Naushard
rabiya@lra.com.lk
+94 114 500099
https://lra.com.lk

Applicable Criteria

Related Research

Disclaimer
This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to LRA

LRA Assigns Initial Ratings to Orient Finance PLC

Rating Type Entity
Current
(30-Dec-21 )
Action Initial
Long Term BB+
Outlook Stable
Rating Watch -

Orient Finance PLC is a listed Leasing Finance Company (LFC) principally involved in financial activities including mobilization of deposits, savings accounts, leasing, hire purchase, gold loans, pledge loans, factoring, and pawning. The market share of the Company remains restricted below 1% representing sufficient room for business expansion complemented by a consolidation scheme at the industry level and rising competition. Historically, the company's financial performance indicators reflected a volatile pattern with fragility in profitability owing to dwindled asset quality and rising NPAs. However, the company's risk profile is now steered towards a turnaround trajectory with improved asset quality and gross NPAs reducing to 9.7% in 6MFY22 compared to 10.8% in 3MFY22 (10.4% in FY21): this is below the industry average ratio of 12.6%. Consequently, the net profit for 6MFY22 increased to LKR~200mln compared to 3MFY22, of LKR~59mln, but there is still room for improvement. The presence of key group management personnel at Orient Finance has boosted the company’s operational efficiency, consequently, enduring economic instability caused by the COVID-19 pandemic. The company's current portfolio is concentrated towards leasing with a 68% focus. Although a shift in the lending portfolio towards the gold loans is observed, Orient Finance's policy is to maintain a ratio of 70:30 between leasing and other loan facilities. On the other hand with the Central Bank of Sri Lanka (CBSL) amalgamation program coming into play, the company is currently considering a possible merger or acquisition of another financial entity, the outcome of which is yet to materialize. The ratings also take into account improved governance and operational practices set out to support the efficacy of business processes which would ultimately translate into better financial performance.
The ratings are dependent on the management's ability to increase and retain its market share and diversify its revenue base to improve its competitive position in the industry of non-banking finance companies. Retention of key personnel, adherence to regulatory requirements, and sustainability of profitability will remain imperative to uphold the ratings.

About the Entity
Orient Finance PLC is a deposit-taking leasing company established in Sri Lanka, with 92% of the shares being owned by Janashakthi Holding PLC. The Company is licensed to operate as a Finance Company under the Finance Company Act No.78 of 1988. The Chief Executive Officer, Mr.K.M.M. Jabir, is a fellow member of the Institute of Bankers of Sri Lanka having more than three decades of professional experience with Financial Institutions. The overall control of Orient
Finance PLC vests in the eight-member Board of Directors (BoD) including the CEO. Except for the CEO, all board members are non-executive directors.

The primary function of LRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. LRA comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. LRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.