LRA Maintains Instrument Rating of First Capital Holdings - LKR 2.5Bn Commercial Papers | Assigns Positive Outlook

LRA takes both Consolidated and Standalone view on the market positioning and performance of the First Capital Holdings PLC (FCH or the Company). The assigned rating incorporates the Company's ability to uphold its relative market position as a Holding Company within the financial service industry. First Capital Treasuries PLC (FCT), the Company’s prominent subsidiary in Primary Dealer activities, has been a major contributor towards FCH's improved business profile and profitability. During FY23, FCH has demonstrated improved financial results and witnessed positive outcomes as compared to the previous year FY22. In FY23, the overall market conditions, particularly the declining interest rates, had turned around in favor for the Primary Dealer Sector, and henceforth for FCT, which resulted in higher trading gains on government securities, ultimately fostering the FCT and group's profitability. The rating take into account the improved margins and profitability of the Company, as well as the augmented on-balance sheet liquidity. The group's profitability increased to LKR~2.6bn in FY23 (6MFY24: LKR~9.6bn) compared to a net loss of LKR~652mn posted in FY22. However, the performance of other related group companies of FCH was moderate for FY23. The rating takes into account FCH’s accumulation of capital over the years with the intention of retaining half of it in order to combat unforeseen challenges in the future and keep the risk cover strong. On a consolidated basis, the Company reflects a total asset base and equity base of LKR~74.9bn and LKR~15.4bn respectively in 6MFY24. The rating also takes into account the eased risk profile of the parent company, Janashakthi Limited (JL), wherein the upflow of dividends from FCT have significantly benefitted the profitability of JL, leading to an increase in internal capital generation and a considerable reduction in the debt leverage.
The rating is dependent on the Company's ability to maintain its strong market position in the changing macroeconomic environment. Meanwhile, a sound financial discipline, including continued capital retention and managed related-party exposure, is imperative. Additionally, the financial health of the parent, JL, in terms of further deleveraging of its capital structure and steady generation of profits, is a key driving factor for a positive impact on the rating.

About the Entity
First Capital Holdings PLC (FCH or the Company) is a public limited liability company incorporated in 23 March 1992 under the provisions of the Companies Act No. 17 of 1982 and re-registered under the Companies Act No. 07 of 2007. FCH’s equity stake of ~83.02% was held by Janashakthi Limited (formerly known as Janashakthi PLC) as in September 2023 (Equity stake held by Janashakthi Limited as of 31 December 2023 was 76.60%). The company’s principal activity comprises investment and management of subsidiaries (7). FCH’s integrated business platform comprises four specialized areas - Capital Markets Advisory, Wealth Management, Fixed Income, and Equities.

About the Instrument
FCH currently has LKR 2.5bn, Rated Commercial Papers in the issue. The tenure of the CP will span for a maximum period of 365 days, with a fixed interest rate being offered. At the point of maturity, the Commercial Papers will be redeemed with the interest and capital repayment being made as a bullet payment. The Company will maintain adequate liquidity buffer with 20% margin of maturities coming up in next thirty days for the Commercial Papers.