LRA Assigns Preliminary Instrument Rating to LOLC Holdings PLC – LKR8bln Listed, Rated, Senior, Unsecured, Redeemable Debenture With 'Rating Watch'.

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 LKR8bln Listed, Rated, Senior, Unsecured, Redeemable Debenture. The initial issue would be LKR5bln with an option to issue up to a further LKR3bln in the event of an over subscription. The debenture will span up to 7 years. The funds generated from the Debenture issue will be utilized for refinancing of short-term debt facilities as well as to strengthen the company’s short term maturity buckets.