Lanka Rating Assigns Initial Rating to Vallibel Finance PLC - LKR 3Bn Subordinated - Unsecured - Redeemable Debenture

Vallibel Finance PLC (VFIN or the Company) is a licensed finance company (LFC) primarily focusing on, vehicle loans, auto drafts, gold loans and leases in Sri Lanka. It is a mid-sized player in the LFC industry with assets comprising ~5.2% of the total industry. The rating of the entity reflects the Company's extensive outreach, superior asset quality (VFIN NPLs are well below the industry average) and improving profitability. Although VFIN's profitability has improved on YoY basis, it still remains below its profitability in FY22. The profitability is expected to remain stable given reduced interest rates and potential repricing of assets/liabilities leading to better interest margin. On the product mix side, auto drafts, vehicle loans and leases make up ~73% of the total lending portfolio. The Company intends to build its vehicle loan and gold loan portfolio further as a strategic move. The gross NPL remains lower than the industry, but the NPL of the leasing portfolio remains relatively high due to stagnation of the product. Majority of the loan portfolio is short-term in nature and would be repriced accordingly. The gearing ratio remains high (3MFY25: ~6.0; FY24: ~5.9x). The Company's Tier I Capital Adequacy Ratio stands at ~16.46% and total Capital Adequacy Ratio is ~19.18% as at 3MFY25. VFIN has obtained approval from the Central Bank of Sri Lanka (CBSL) to issue a subordinate, unsecured, Tier-II Debenture to further strengthen its capital. Subsequent to the Debenture issue, the Company's Tier 1 and total CAR will be ~14.15% and ~20.24%, respectively. This will provide cushion to VFIN for its growth plans and to increase its total asset base beyond LKR~100bn in 2024. The Company will invest the funds raised by this Debenture Issue in Government Securities in the interim period until such funds are disbursed for lending purposes gradually within 12 months from the date of issuance. The rating of the Debenture is one notch below the entity rating due to its subordinate nature and Tier II characteristics.
The rating is dependent on sustaining the asset quality and improving the profitability of the Company. Strengthening and expanding the capital base of the Company and adhering to capital adequacy requirements as stipulated by CBSL will be crucial.

About the Entity
Vallibel Finance PLC is a public limited liability company incorporated and domiciled in Sri Lanka and listed on the Colombo Stock Exchange. Subsequent to the acquisition by Vallibel Investment (Pvt.) Limited in 2005, it became Vallibel Finance. The principal activities of VFIN are accepting deposits, granting finance leases, vehicle loans, auto drafts, gold loans, and other credit facilities. The Board of Directors consists of six members of which three are Non-Executive and Independent Directors.

About the Instrument
Vallibel Finance PLC is in the process of issuing LKR~3bn Listed, Rated, Subordinated, Unsecured, Redeemable Debenture. The initial issue would be LKR~2bn with an option to issue up to a further LKR~1bn in the event of an over subscription. The issue will have Type 'A' and Type 'B' Debentures. Coupon interest will be paid Bi-annually (Type A) and Annually (Type B). The objective of the debenture issue is to expand and strengthen the capital base of the Company to support its growth plans and to maintain the capital adequacy requirements as stipulated by CBSL.