LRA Assigns Initial Instrument Rating to First Capital Holdings - LKR 2Bn Senior Unsecured Redeemable Debentures

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 remain 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 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 Sept'22.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 2Bn, listed, rated, senior, unsecured, redeemable debentures each worth LKR 100/-. The tenure of the debentures will span for a period of 60 months. Type A Debenture coupons are paid annually at the fixed rate of 10% p.a. (AER - 10%) and Type B Debenture coupons are paid annually at the is a floating rate of weekly AWPLR + 2.00% p.a. with a ceiling of 12% & a floor of 9%. The debenture was opened for subscription on 1-Feb'21 and closed on 8-Feb'21. The objective of the issue is to to invest in Listed Debt (35%), Unlisted Debt (50%) and Listed Equities (15%).