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  • Methodology | Debt Instrument Rating | Jun-22

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  • Sector Study | Holding Company | Oct-22

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LRA Assigns Initial Rating to First Capital Holdings - LKR 2.5Bn - Commercial Papers

Rating Type Commercial Paper
Action Initial
Short Term A1
Outlook Stable
Rating Watch -

LRA has taken both consolidated and standalone view of the First Capital Holdings PLC (FCH) . The assigned ratings incorporate the Company's ability to uphold its relative market position as a Holding Company within the financial service industry. First Capital Treasuries PLC (FCT), the Company’s prominent subsidiary in Primary Dealer activities, has been a major contributor towards FCH business profile and profitability. Meanwhile, the Company has expanded into multiple financial services avenues including, Capital Markets Advisory, Wealth Management, Fixed Income, and Equities. In FY22, market conditions became unfavorable for FCT, which resulted in lower group profitability due to rising interest rates. The economic situation in the country has pushed businesses to reconsider their strategies with greater focus on short term and this also reflects in FCH performance for the period 6MFY23. During the ongoing year FY23, FCH has shown improvement and witnessed positive outcomes as compared to the previous year (FY22). The ratings take into account the improved margins and profitability of the Company, as well as on-balance sheet liquidity. However, debt profile of the Company has remained some mismatch. At the company level, funding profile of FCH largely comprises of commercial papers and debentures. There exists asset liability mismatch (in negative terms), which exposes FCH to re-financing risks. The group’s access to funding facilities from banks and other financial institutions, provides comfort from a liquidity viewpoint. With a view to sustainable diversified revenue streams, management is building upon various revenue segments in terms of both activity based and fee based incomes. The rating takes into account liquidity mechanism to be undertaken by the Company to ensure timely payments of maturing Commercial Papers under this program.
Ratings are dependent on the management's initiative to strengthen the investment decision-making process and performance monitoring mechanism of the underlying portfolio. This would facilitate First Capital Holdings' assimilation into an effective holding company. As a holding company, portfolio diversification and a balanced investment remains imperative. It is crucial for the Company to maintain adequate yet agreed capital and liquidity buffers to meet the short-term CP's repayment and an overall healthy leverage profile, going forward.

About the Entity
First Capital Holdings PLC (FCH or the Company) is a public limited company incorporated in 1992 under the provisions of the Companies Act No. 17 of 1982 and re-registered under the Companies Act No. 07 of 2007. FCH’s equity stake of 83.02% is held by Janashakthi Limited (formerly known as Janashakthi PLC) as in September 2022.The company’s principal activity comprises investment and management of subsidiaries (6). FCH’s integrated business platform comprises four specialized areas - Capital Markets Advisory, Wealth Management, Fixed Income, and Equities.

About the Instrument
FCH currently has LKR 2.5bn, Rated Commercial Papers in the issue. The tenure of the CP will span for a maximum period of 365 days, with a tenor-based fixed interest rate being offered. At the point of maturity, the Commercial Papers will be redeemed with the interest and capital repayment being made as a bullet payment. The Company will maintain an adequate liquidity buffer with a 20% margin of maturities coming up in the next thirty days for the Commercial Papers.

The primary function of LRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. LRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. LRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.