Lanka Rating Assigns Preliminary Debt Instrument Rating to Alliance Finance Company PLC's Green Bond

Alliance Finance Company PLC ("AFC" or "the Company") is a Licensed Finance Company (LFC) listed on the Colombo Stock Exchange since 1959. It is a mid-sized player in the LFC industry with assets comprising ~3.4% of total industry. AFC adopted the Triple Bottom Line (TBL) philosophy in 2012 and plans to develop its products in line with these values driven to a sustainable business mandate. AFC's Net Interest Income (NIM) increased to LKR~1.8bln in 3MFY25 compared to LKR~1.0bln in 3MFY24, a growth of ~79.7% YoY. Similarly, AFC's net profit stood at LKR~917mln in FY24 and LKR~247mln in 3MFY25.
AFC plans to issue its first 3-year Green Bond (Up to maximum of LKR~1000mln face value), with proceeds exclusively funding eligible green projects focused on rooftop solar installations and financing solar equipment vendors in Sri Lanka. Deloitte Associates Sri Lanka will serve as the Independent External Verifier for this issuance. Seylan Bank PLC (SEYB), a Licensed Commercial Bank Rated "A-" (single A minus), is providing the financial guarantee that will cover the entire face value and two interest payments (up to maximum of LKR~1.135bln). The rating reflects the irrevocable and unconditional guarantee structure in place with bond holders having recourse to both AFC and SEYB in case of non-payment of interest or principal.
The Company has designed a mechanism to identify Solar Power and green projects. A cross-functional task force, including ESG and climate finance experts, oversees evaluations through feasibility studies and technical assessments. The Company will implement a governance framework to manage Green Bond proceeds, depositing funds in a separate account monitored periodically.
The rating depends on AFC's continued ability to achieve its strategic objectives while maintaining strong asset quality, sound financial management, sustainable leveraging and diversified funding base. Meanwhile, effectively managing Green Bond proceeds and implementing a strong framework will be critical from bond holder's perspective. Compliance with applicable guidelines and regulatory requirements for Green Bonds is important.

About the Entity
Alliance Finance Company PLC ("AFC" or "the Company") is a public limited company incorporated in 1956 under the provisions of the Companies Ordinance No. 51 of 1938 and re-registered under the Companies Act No. 07 of 2007. The largest shareholder of the Company remains Mr. R K E P De Silva with ownership of ~36.87%. The Company has a nine-member Board, out of which two are Independent Directors, one is Non-Independent Non-Executive and three are Executive directors. The Management team is headed by Mr. De Silva who leads the Company as the Managing Director and the Deputy Chairman as well.

About the Instrument
AFC intends to issue a 3-year Green Bond (Up to maximum of LKR~1000mln face value). The discount rate will be determined based on Sri Lankan Government Security (3-year Bond) Rate Plus Premium. The Green Bond is fully secured by SEYB's unconditional and irrevocable Financial Guarantee that will cover the entire Face Value and two interest payments (up to maximum of LKR~1.135bln).