Lanka Rating Agency
24-Jan-23
Analyst
Rabiya tul Athaviya Naushard
rabiya@lra.com.lk
+94 114 500099
www.lra.com.lk
Applicable Criteria
- Methodology | Non-Banking Finance Companies Rating | Jun-22
Related Research
- Sector Study | Brokerage & Securities | Jan-22
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LRA Assigns Initial Entity Rating to First Capital Treasuries PLC
| Rating Type | Entity | |
|
Current (24-Jan-23) |
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| Action | Initial | |
| Long Term | A | |
| Outlook | Stable | |
| Rating Watch | - | |
The rating reflects the stable growth First Capital Treasuries PLC (FCT or The Company) has experienced in the past. With a LKR 4.6bn capital base as at September 22, the Company has gained an advantage in the high interest environment prevailing in the country. As a result of the low-interest environment in CY21, the Primary Dealer sector in the country reported a loss of LKR 0.4bn, which extended to FCT where the Company incurred a loss of LKR 652mn. As a listed entity in the Colombo Stock Exchange, FCT draws stability and has adhered to the Capital Adequacy Ratio (CAR) requirements imposed by the Central Bank of Sri Lanka (CBSL). FCT maintained a CAR of 84% (FY21: 33%), which is well above the statutory requirement of 10%. In CY21, the Company accounted for 5.9% and 3.6% of the Treasury Bill and Treasury Bond auctions of CY21. The Company draws stability from its Holding Company, First Capital Holdings PLC (FCH), which falls under the Janashakthi Group, being prominent financial services-related entities in Sri Lanka. The credit risk is minimum for the Company as a result of investing 97% of its assets in government securities. However, FCT encounters unfavorable market conditions particularly with respect to significant interest rate risk. If CBSL makes the decision to increase the interest rates in the year 2023, it could face added pressure on its profitability, similar to the previous financial year.
The rating is dependent on the Company's ability to maintain its position in the volatile macroeconomic condition. A significant factor would be its adaptability to sustain and improve its profitability in an increasing interest rate environment.
About
the Entity
First Capital Treasuries PLC (FCT) was incorporated on 19 August 1982 as a public limited liability company under the Companies Act, No. 07 of 2007. The Company is a subsidiary of First Capital Limited, which is a subsidiary under First Capital Holdings PLC, the Janashakthi Umbrella. FCT has a well-balanced board of seven members, out of which six are non-executive directors. The management team is headed by Mr. Dilshan Wirasekara, the Managing Director/CEO of the Company.