LANKA RATING ASSIGNS


Initial Rating to

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Lanka Credit and Business Finance PLC's Tier II Subordinated, Listed, Rated, Unsecured, Redeemable, 5 Year High Yield Bond Issue

25-Jul-25

01

Applicable Criteria

Methodology | Non-Banking Financial Institution Rating | Jul-24

Methodology | Debt Instrument Rating | Aug-24

02

Related Research

Sector Study | Leasing & Finance Companies | Feb-25


03

Analyst

Imran Iqbal | imran@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
(25-Jul-25)
Action Preliminary
Rating B+
Outlook Stable
Rating Watch -


Lanka Credit & Business Finance PLC (“LCBF” or “the Company”) is a relatively marginal participant in Sri Lanka's highly competitive Licensed Finance Company sector. The Company offers a range of financial products, with a primary focus on term loans, leasing, and gold loans. Potential growth prospects have been identified by LCBF as the agriculture and tourism sectors. LCBF aims to expand its rural footprint by expanding its branch network to serve agrarian segments better. The Company also intends to establish its presence in the microfinance sector by offering bulk lending facilities to cooperative societies. LCBF’s stability is primarily underpinned by its adequate ownership structure. Its parent entity and main shareholder, Lanka Credit and Business Limited, has been financing the business with capital infusions. LCBF is issuing a LKR ~750Mn Tier II Subordinated, Listed, Rated, Unsecured, Redeemable, 5-Year High Yield Bond, which may be increased up to LKR ~1.5Bn in case of oversubscription. The subordinated nature of the instrument implies that it ranks below secured creditors and statutory preferential claims, while ranking pari passu with the Company’s other unsecured obligations. The assigned rating reflects the subordinated nature of the bond as it is assigned one notch below the Company’s entity rating. Main objective of the Bond Issue is to expand the Tier II capital and strengthen the total capital base of the Company in keeping up with anticipated growth in lending portfolio. LCBF's net interest income increased by approximately ~45% in FY25, YoY, supported by improved asset yield and reduced cost of funds. The Company recorded a net profit of LKR ~204Mn in FY25 (FY24: LKR ~122Mn). However, the Company's Gross NPLs have been significantly higher than industry average over the past few year. The Gross NPLs during FY25 were ~10.66% whereas the industry average was ~8.3%. LCBF meets the net capital base requirement of LKR 3Bn. Total Capital Adequacy Ratio was ~36.7% in FY25, primarily comprising Tier 1 capital. Post issuance of the Tier II Subordinated Bonds, total CAR of the Company is expected to go up to ~52%, providing ample room for lending portfolio growth.
The rating depends on LCBF's ability to successfully execute its growth plans, sustain profitability and enhance asset quality. Any deterioration in key metrics or non-compliance with regulatory requirements will have negative rating repercussions. Meanwhile, improvement in market share, profitability and asset quality would have positive rating implications.
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About the Entity

Lanka Credit & Business Finance PLC (“LCBF” or “the Company”) is a Public Limited Liability Company. LCBF was incorporated on 5th September 2016 and is domiciled in Sri Lanka under the Companies Act No. 07 of 2007. The Company is approved under Finance Business Act No. 42 of 2011 and is listed on Colombo Stock Exchange. LCBF (formerly known as City Finance Corporation Limited) was restructured as a result of an investment made by Lanka Credit and Business Limited, the Company's ultimate parent and controlling shareholder, under the guidance of the CBSL in May 2018.


About the Instrument

Lanka Credit & Business Finance PLC intends to raise up to LKR~1.5Bn Tier II Subordinated, Listed, Rated, Unsecured, Redeemable, 5-year High Yield bonds at a par value of LKR 100/-. The Bonds have two types, namely Type A and Type B. Type A Bond coupons are paid semi-annually at the fixed rate of 12.60% p.a. (AER – 13%) and Type B Bond coupons are paid quarterly at a fixed rate of 12.41% p.a. (AER – 13%).

Lanka Rating Agency Limited

No. 145,
Kynsey Road, Colombo 00800, Sri Lanka

Tel: +94 11 450 0099

Web: http://lra.com.lk

E-mail: info@lra.com.lk