LRA Places Debt Instrument Rating of Softlogic Capital PLC - LKR 1.5Bn Listed Senior Unsecured Redeemable Debenture on "Rating Watch", Assigns "Negative" Outlook

The Lanka Rating Agency (LRA) has placed the debt instrument rating of Softlogic Capital PLC ("SCAP" or "the Company") - LKR 1.5Bn Listed Senior Unsecured Redeemable Debenture on "Rating Watch" and assigned a "Negative Outlook" to the rating. This signifies pressure on the financial profile of the Company. The parent entity Softlogic Holdings PLC’s ("Softlogic Holdings") financial profile has come under duress due to increased leveraging coupled with a delay in the release of financial statements and a qualified auditor opinion. Softlogic Group has longstanding position in Healthcare, Retail and Financial Services segments. During the period under review, the Company faced challenges on dual fronts; the first emanating from the distressed performance of its LFC sector subsidiary, i.e., Softlogic Finance PLC ("Softlogic Finance"), and the second being the trickling impact of the parent entity's performance. The SCAP group results revealed a net loss of LKR~372mn in 9MFY24 (a loss of LKR~2.4bn in FY23). Meanwhile, the standalone profitability of SCAP also reduced sharply to a loss of LKR~1.0bn in 9MFY24 (LKR~(1.1bn) in FY23), while the debt-to-equity ratio increased considerably to ~87% in 9MFY24 (~77% in FY23). In this regard, the management intends to raise capital to improve its leveraging over the short-term. The management also seeks to roll over certain debt obligations and issue new debt with current debt levels sustained at around LKR~13.6bn for FY24 and FY25. Furthermore, action plans to address performance issues at the Softlogic Finance level have been devised. Lower interest rates will provide some relief in debt servicing.
The rating is dependent on the Company's ability to successfully execute its planned strategy in a timely manner to improve its financial profile through equity injection and new debt issuance at lower rates to strengthen capital structure and liquidity. Any material delay in envisaged plan or other events having negative impact on the Company in particular and Group as a whole, will result in rating downgrade.

About the Entity
Softlogic Capital PLC is a Public Limited Company incorporated under the Companies Act No. 17 of 1982 and re-registered under the Companies Act No. 07 of 2007 in 2007. The registered office of the Company is located at Level 16, One Galle Face Tower, Colombo 02.

About the Instrument
SCAP currently has in issue LKR 1.5bn, listed, rated, senior, unsecured, redeemable debentures with a tenor spanning for a period of 60 months. Type A, B, and C pay a fixed interest rate, while type D pays a floating interest rate. The settlement of LKR 1.3bn of the debenture is due by Dec'24. Management's commitment to alleviate the financial stress in order to ensure timely repayment of the debenture is critical.