LRA Assigns Initial Instrument Rating to LOLC Finance PLC - LKR 06bn Asset Securitisation

The rating of the asset securitisation highlights the secured structure, where the securitisation will rank in priority to all subordinated and senior debt. Consequently, the debt instrument is rated one notch above 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 maintaining and improving asset quality. Any future rating action will be dependent upon sustainable synergies developed through the merger resulting in operational efficiencies and better performance. The rating also remains dependent on the securitization of the assets for the debt instruments.

About the Entity
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.

About the Instrument
Commercial Leasing and finance PLC (CLF) issued debt instrument backed by assets worth 6bn of which 2.98bn are outstanding and are present on the books of LOFC post-merger. The asset securitisation is a consolidation of three asset securitisations. It was issued in tranches and the trustees for the issue were, namely, i) NSB Fund Management Company Limited (“NSBFM”) ii) Hatton National Bank (“HNB”) iii) People’s Bank (“PB”). The HNB, NSBFM and PB asset securitisations carry an interest rate of AWPLR + 250 bps, 8.75% and 10.75% respectively. The asset securitisation is secured by mortgaging rental receivables of leases, hire purchase and vehicle flexi loans. While HNB and NSBFM matures in March 2024, PB will mature in December 2024.