LRA Maintains Instrument Rating of First Capital Treasuries PLC - LKR 750mn Subordinated Unsecured Redeemable Debentures | Assigns Positive Outlook

The rating reflects First Capital Treasuries PLC's ("FCT" or "the Company") strong position in the Primary Dealer (PD) market, significant increase in profitability and robust capitalization of the Company. The gradual reduction in interest rates during FY23 and FY24 has resulted in substantial improvement in the overall performance of the Primary Dealer sector in the country as most of the players held high yielding treasury bonds. FCT also gained advantage of net trading income being accelerated by 948% to LKR~3.7bn in FY23 (6MFY24: LKR~12.8bn) and recorded a net profit of LKR~2.9bn in FY23 (6MFY24: LKR~9.2bn) compared to a net loss of LKR~652mn in FY22. The Company recorded a healthy Capital Adequacy Ratio (CAR) of ~23.98% in FY23 which is well above the statutory requirement of 10%. FCT maintaining the dominance as a Standalone Primary Dealer unaffiliated to any Licensed Commercial Bank and has accounted for market bid participation rate of 16.6% and 16.8% for Treasury Bills and Treasury Bonds in FY23. The credit risk of the Company remains minimum as a result of investing 97% of its assets in the Government Securities. However, FCT encounters unpredictable market conditions particularly with respect to interest rate volatility, which makes it exposed to market risk under changing interest rates environment. The sustainability of profitability of FCT is dependent on the movement of interest rates as well as the ensuing management's investment strategy in this regard.
The rating is dependent on the Company's ability to maintain its strong market position in the Primary Dealer Sector. Sound financial practices, particularly with regards to limiting debt exposure against the available liquidity are important. Additionally, sustaining a healthy generation of profits to augment internal capital retention and strengthen the financial risk profile are imperative factors for a positive impact on the rating.

About the Entity
First Capital Treasuries PLC (FCT) was incorporated on 19 August 1982 as a public limited liability company under the provisions of the Companies Act No. 17 of 1982 and re-registered under the Companies Act No. 07 of 2007. The Company was incorporated as a money brokering company and was appointed as a Primary Dealer in Government Securities by the CBSL in the year 1992. The Company is a subsidiary of First Capital Limited, which is a subsidiary under First Capital Holdings PLC, the Janashakthi Umbrella. The management team is headed by Mr. Sachith Perera, the CEO of the Company.

About the Instrument
FCT currently has LKR 750mn, listed, rated, subordinated, unsecured, redeemable debentures each worth LKR 100/-. The tenure of the debentures is five years. The debenture was opened for subscription on 27th January 2020 and alloted on 30th January 2020. The objective of the issue is to increase the Tier II Capital of the Company and thereby enhance the Capital adequacy position.