LRA Maintains Entity Rating of LOLC Holdings PLC

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 in Sri Lanka (Asset Base of LKR~1.7trn – FY24). The HoldCo has evolved over the years from financial services to a diversified portfolio of investments spanning across sectors in the local and international markets, although it remains dominant in terms of assets and profitability. The Group has diversified geographically and has presence in 25 countries, primarily in South and South East Asia, Central Asia, 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 ~89.5% in the Group's revenue. The assigned rating incorporates 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 strong despite economic challenges in Sri Lanka. Diversification in other segments and USD based revenues have provided cushion and strengthened profitability. The HoldCo’s net profits have increased to LKR~29.8bn in FY24 from LKR~22.4bn in FY23. The Group’s net profit remained stagnant at LKR~21.7bn in FY24 as compared to LKR~21.6bn in FY23. The financial services segment remains profitable during FY24 with very strong performance of LOLC Combodia and LOLC Finance in Sri Lanka. Other financial sector entities, mainly in microfinance space, have improved performance as well, although certain countries have yet to show profitability. The leisure sector has stemmed losses after strong pick up in tourism in Sri Lanka and other countries where the Group operates hotels and resorts. Trading and manufacturing segment remains under pressure, posting significant losses, due to lower demand and higher debt levels. The rating also takes into account the debt profile of the Company as well as increased intercompany lending. The debt-to-equity ratio remains comfortable at the HoldCo level but has increased to ~51.3% in FY24 (FY23: ~42.7%). The HoldCo’s financial liabilities are dominated by short-term debts, mostly Commercial Paper (CP) Programs, representing ~62% of the total debt. This is mainly because of higher intercompany lending (FY24: LKR~195.9bn; FY23: LKR~117.6bn). Reduction in interest rates bodes well for the Group and HoldCo, given high amount of debt. Short-term debt is expected to be successfully rolled over but needs to be managed carefully considering higher quantum of borrowings maturing within 12 months. Meanwhile. the HoldCo’s liquidity profile consists of investments, placements with financial institutions and unutilized short-term lines. The Group and HoldCo are taking several initiatives to improve liquidity and reduce debt. The "Rating Watch" signifies these initiatives and materialization of the same in timely manner. These include divestment of certain strategic investments and liquidation of Government Securities.
Successful and timely completion of the management's plan to divest assets and reduce borrowings is important for the rating. Improvement in the debt mix towards long term debt to alleviate pressure on short-term repayments will and reduction in debt level will be positive. 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. Ishara Nanayakkara with an ownership of around 80%. Mr. Nanayakkara is one of Sri Lanka’s leading entrepreneurs coming from a strong business background.