Lanka Rating Upgrades Debt Instrument Rating of

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Alliance Finance Company PLC - Green Bond

06-Jun-25

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Applicable Criteria

Methodology | Debt Instrument Rating | Aug-24

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Related Research

Sector Study | Leasing & Finance Companies | Feb-25


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Analyst

Gayani Randima Ariyawansa | gayani@lra.com.lk
+94 114 500099 | www.lra.com.lk

PRESS
RELEASE

DISCLAIMER

This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to LRA

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Rating Type Debt Instrument
Current
(06-Jun-25) 		Previous
(20-Nov-24)
Action Upgrade Preliminary
Rating A+ A-
Outlook Stable Stable
Rating Watch - -


Alliance Finance Company PLC ("AFC" or "the Company") is a Licensed Finance Company (LFC) listed on the Colombo Stock Exchange since 1959. The rating reflects irrevocable and unconditional guarantee structure in place for the Green Bond. The principal and upto two interest payments (maximum of LKR~1.107bn) is fully guaranteed by Seylan Bank (rated A+). The bond holders have recourse to both Seylan Bank and AFC in case of non-payment of interest and/or principal. AFC is the oldest finance company in Sri Lanka and adopted the Triple Bottom Line (TBL) philosophy in 2012. AFC has improved its profitability and asset quality during FY25 while focusing on sustainable financing solutions. The Company plans to develop its products in line with these values driven by a sustainable business mandate. The Company is classified as a mid-sized LFC, representing approximately ~3.9% of the sector’s assets, ~3.1% of its deposits and ~4.0% of the sector’s total loans and advances as of 9MFY25. The portfolio's diversification with higher-value loan products, leading to lower costs associated with small-ticket lending, has strengthened profitability and improved asset quality. AFC's Net Interest Income (NIM) increased to LKR~5.9bn in 9MFY25 compared to LKR~4.0bn in 9MFY24, a growth of ~48.3% y-o-y. Likewise, AFC's net profit stood at LKR~993.5mn in 9MFY25 (9MFY24: LKR~492.6mn). AFC has invested in people, systems, processes, and sustainability certifications resulting in modest short-term profits but expected to boost long-term sustainability and profitability. The Gross NPL ratio was ~6.8% during 9MFY25, lower than the industry average of ~11.3%. The Company’s Capital Adequacy Ratio stood at ~14.5% in 9MFY25, above the Central Bank of Sri Lanka's (CBSL) statutory requirement of ~12.5% but remains below the industry average. Going forward, AFC is committed to sustainability, reflected in climate-focused products like Cinnamon Cultivators Development and Rooftop Solar Loans.
The rating depends on continuation of the guarantee structure and AFC's 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 Green Bond framework will be critical from bond holder's perspective. Compliance with applicable guidelines and regulatory requirements for Green Bonds is important.
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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 three are Independent Directors and three are Non Independent Non 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 has issued a 3-year Green Bond (Up to maximum of LKR~1000mn face value). This is the first Green Bond issued by a LFC. The interest rate on the bond is 10.75%. The Green Bond is fully secured by Seylan Bank's unconditional and irrevocable financial guarantee that will cover the entire Face Value and two interest payments (up to maximum of LKR~1.107bn).

Lanka Rating Agency Limited

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