+94 114 500099
Methodology | Debt Instrument Rating | Jun-22
Methodology | Non-Banking Finance Companies Rating | Jun-22
Sector Study | Leasing & Finance Companies | Dec-22
LRA Assigns Initial Instrument Rating to LOLC Finance PLC - LKR 05bn Unsecured Senior Redeemable Debentures
|Rating Type||Debt Instrument|
The rating of the debenture highlights the unsecured senior structure, where the debenture will rank after all the claims of the secured creditors and preferential claims under any statutes governing the Company, but in pari passu to the claims of unsecured creditors of the Company. Consequently, the debt instrument is rated equivalent to the entity rating. On the entity level, the rating emanates from the leading position LOLC Finance PLC (LOFC or the Company) holds in the sector as the largest Licensed Finance Company (LFC). LOFC amalgamated with Commercial Leasing and Finance PLC (CLF) in March 2022 following the merger of CLF with Singhaputhra Finance PLC (SFPLC). LOFC further merged with LOLC Development Finance PLC (LODF) in January 2023 consolidating its position as the largest player in LFCs. The Company draws strength from the diversified investments and financial strength of LOLC Group. During 9MFY23, the Company's net interest income increased to LKR 23bln due to mergers, even though the Company's core spread decreased. Despite higher provisions due to a higher interest rate scenario, the Company's profits improved at an absolute level. Going forward, stability in the country and the impact of the mergers are expected to improve the performance of the company. Its Non-Performing Loans (NPL) remain below industry averages with a 120-day gross and net NPL of 12.6% and 8.3% respectively. Ratings reflect its solid capitalization position with the Capital Adequacy Ratio (CAR) maintained at ~20.2% (FY22: ~20.7%) as at 9MFY23, which is well above the regulatory requirement of the Central Bank of Sri Lanka (CBSL). The merger in March 2022, further improved its equity base to LKR ~94bn as at 9MFY22
The ratings remain dependent upon maintaining its leading position in the sector and navigating through challenging economic times while maintain and improving asset quality. Any future rating action will be dependent upon sustainable synergies developed through merger resulting into operational efficiencies and better performance.
LOLC Finance PLC (LOFC or the Company) is registered as a Finance Company under the provisions of the Finance Business Act No. 42 of 2011. It is also registered under the Securities and Exchange Commission as a Market Intermediary to perform the functions of a Margin Provider. The largest shareholder of the Company is LOLC Ceylon Holdings PLC with an ownership of 81.04%. The Board of Directors has eight members, out of which six are Non-Executive Directors. The Chief Executive Officer, Mr. D M D K Thilakaratne has over 25 years of experience and is supported by a well qualified and experienced management team.
The LKR 5bn unsecured senior redeemable debenture was issued by Commercial Leasing and Finance PLC (CLF), which was transferred to LOLC Finance PLC (LOFC or the Company) following the merger. The issue consists of two types of debentures. While Type A offers a fixed rate of 10.5% paid bi-annually, Type B provides a bi-annual payment with a floating rate of a six-month treasury bill rate + 425bps, without a cap. The objective of the issue was for general corporate purposes including refinancing of existing borrowings and financing of working capital requirements of CLF. It carries a tenor of five years and the principal will be repaid at the end of the tenor.