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Lanka Rating Agency
Press Release

Date
20-Nov-23

Analyst
Tharika Prabashwari Kodikara
tharika@lra.com.lk
+94 114 500099
https://lra.com.lk

Applicable Criteria

  • Methodology | Debt Instrument Rating | Jun-22

Related Research

  • Sector Study | Holding Company | Mar-23

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LRA Assigns Preliminary Instrument Rating to LOLC Holdings PLC - LKR 15bn Commercial Paper With 'Rating Watch'

Rating Type Commercial Paper
Current
(20-Nov-23 )
Action Preliminary
Short Term A1
Outlook Stable
Rating Watch YES

The rating reflects LOLC Holding's (“the HoldCo”) robust position as the ultimate Holding Company of the LOLC Group (the Group) - one of the largest conglomerates of Sri Lanka in terms of asset base (LKR~1.7trn - June'23). The HoldCo has a diversified portfolio of investments spanning across sectors in the local and international markets. The Group has a presence in 25 countries primarily in the South and South East Asia, Central Asia and the Africa and MENA Region. At the broader level, the Group's operating segments are clustered into financial and non-financial segments, with financial segment possessing the higher share of 64% in the Group's revenue. The assigned rating reflects the cumulative impact of the financial performance of the Group in addition to the standalone performance of the HoldCo. Historically, the HoldCo's financial performance has remained robust. However, the Group's non-financial services long term strategic investments segment (under the "Browns Investments") have lately contributed to higher debt levels and reduced profitability at the Group as well as HoldCo level. The debt-to-equity ratio of the HoldCo has increased from ~36% in Dec’22 to ~48% in June’23, while that for the Group has reached to ~55% in June’23 (~53% in Mar’23). The HoldCo’s net profits have also declined by ~76% to LKR~4bln in 1QFY24 from LKR~17bln in 1QFY23. Similarly, the Group’s net profit has witnessed a fall of ~94% from LKR~21bln in 1QFY23 to LKR~1bln in 1QFY24. The HoldCo’s financial liabilities are dominated by short-term debts, most of which are Commercial Paper (CP) Programs, representing ~70% of the HoldCo’s debt profile (June’23). Considering the reduced cashflow generation against rising short-term obligations, the successful roll-over of CP Programs remains critical for the ratings. Meanwhile. the HoldCo’s liquidity profile consists of investments and unutilized short-term lines, which provide cushion to meet its short-term obligations.
The rating is put under “Watch” to closely surveil the HoldCo’s financial discipline in the short-term, which currently remains under stretch, particularly in the context of short-term repayment risk associated with CP rollovers. Meanwhile, enhanced cashflows from operations and materialization of envisaged plans for income generation are imperative to improve the HoldCo's financial matrix.

About the Entity
LOLC Holdings PLC ("the HoldCo") is a Public Quoted Company incorporated in 1980. The HoldCo became the Holding Company of the Group in 2011. The largest shareholding of the HoldCo lies with Mr. I C Nanayakkara with an ownership of around 80%. Mr. I C Nanayakkara is one of Sri Lanka’s leading entrepreneurs coming from a strong business background.

About the Instrument
LOLC Holdings PLC is in the process of issuing LKR15bn Commercial Papers (CP), a short-term, non-collateralized (Unsecured) debt instrument. The tenure of the commercial paper will span from 1 month to 12 months depending on the appetite of the investors. The Commercial Papers will be rolled over at maturity. The purpose of the CP is retire some outstanding short term borrowings.

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.