LRA Assigns Initial Instrument Rating to First Capital Treasuries PLC - LKR 750mn Subordinated Unsecured Redeemable Debentures

The rating reflects the stable growth First Capital Treasuries PLC (FCT or The Company) has experienced in the past. With a LKR 4.6bn capital base as at September 2022, the Company has gained an advantage in the high interest environment prevailing in the country. As a result of the low-interest environment in CY21, the Primary Dealer sector in the country reported a loss of LKR 0.4bn, which extended to FCT where the Company incurred a loss of LKR 652mn. As a listed entity in the Colombo Stock Exchange, FCT draws stability and has adhered to the Capital Adequacy Ratio (CAR) requirements imposed by the Central Bank of Sri Lanka (CBSL). FCT sustained a CAR of 84% (FY21: 33%), which is well above the statutory requirement of 10%. In CY21, the Company accounted for 5.9% and 3.6% of the Treasury Bill and Treasury Bond auctions of CY21 respectively. The Company draws stability from its Holding Company, First Capital Holdings PLC (FCH) which falls under Janashakthi Group, being prominent financial services-related entities in Sri Lanka. The credit risk is minimum for the Company as a result of investing 97% of its assets in government securities. However, FCT encounters unfavorable market conditions particularly with respect to significant interest rate risk. If CBSL makes the decision to increase the interest rates in the year 2023, it could face added pressure on its profitability, similar to the previous financial year.
Ratings are dependent on the management's initiative to strengthen the investment decision-making process and performance monitoring mechanism of the underlying portfolio.

About the Entity
The Company was incorporated on 19th August 1982 as a money brokering company, and was appointed as a Primary Dealer in Government Securities by the CBSL in the year 1992.

About the Instrument
FCT currently has LKR 750mn, listed, rated, subordinated, unsecured, redeemable debentures each worth LKR 100/-. The tenure of the debentures will span for a period of 60 months. The debenture was opened for subscription on 27th January 2020 and closed on 30th January 2020. The objective of the issue is to increase the Tier II Capital of the Company and thereby enhance the Capital adequacy position.