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LRA Assigns Initial Rating to Multi Finance PLC
The rating of Multi Finance PLC (MFC or the Company) takes into consideration its small size, accounting for approximately 0.1% of the equity in the industry. The negative outlook on the rating reflects pending litigation regarding the transfer of shares to LB Finance PLC. The overall entity rating reflects the potential ability of the sponsor, LB Finance PLC, to support MFC. LB Finance PLC holds a prominent position in the Non-Banking Financial sector, providing strategic direction to the Company. However, due to the pending transfer of shareholding, it remains uncertain whether LB Finance PLC will provide the necessary capital infusion to meet regulatory requirements. The economic turmoil in the country has further deteriorated the Company's performance, with a Net Interest Income of LKR 68mn (FY22: LKR 86mn) as of FY23. The Company's asset quality remains poor, with high levels of Non-Performing Loans (NPLs), indicated by Gross and Net NPLs of approximately 56% (FY22: approximately 53%) and 7% (FY22: approximately 12%) respectively, as of FY23. MFC has followed the impairment guidelines of LB Finance PLC and has prudently provided for its NPLs. Going forward, MFC will focus on Gold Loans, Leasing, and Auto Financing as its primary business segments under the guidance of LB Finance PLC. However, it is important to note that MFC has not adhered to the regulatory requirement of core capital, with a core capital of LKR 295mn as of FY23, while the regulatory requirement stands at LKR 2.5bn. MFC has submitted a four-year plan to the Central Bank of Sri Lanka (CBSL) to meet the core capital requirement by FY27 and is currently awaiting approval.
Ratings of the Company remains dependent upon adhering to the minimum capital requirements. Any future rating movement will rely on the improvement in the size of the Company while enhancing the asset quality of the book.
Multi Finance PLC (MFC or the Company) is a Licensed Finance Company incorporated in 1974. It was registered under the Companies Act No. 07 of 2007 in 2009. The Company was listed on the Colombo Stock Exchange in 2011. The largest share of the Company is owned by LB Finance PLC, with an ownership of ~65%. The Board of MFC consists of seven Non-Independent and Non-Executive Directors. MFC is managed by the Senior Management of LB Finance PLC and they possess experience and qualifications in their relevant fields.