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LRA Assigns Initial Entity Rating to Softlogic Capital PLC
The rating incorporates Softlogic Group's longstanding position in its operating segments, namely Healthcare, Retail and Financial Services. Softlogic Capital PLC ("the HoldCo"), a subsidiary of Softlogic Holdings, operates as an Investment HoldCo of the Financial Services segment of the Softlogic Group. The HoldCo operates independently from Softlogic Holdings in terms of its governance, operations and financial management. Investments of the HoldCo comprise four (4) subsidiaries, each of which operates in the Insurance, NBFIs, Asset Management and Stockbrokerage Sectors. The HoldCo's quoted subsidiaries, i.e., Softlogic Life Insurance and Softlogic Finance, possess majority of its investment stake, while the Investments in Capital Market - Softlogic Invest and Softlogic Stockbroker, are relatively smaller in size. The assigned rating reflects the cumulative impact of the financial performance of the HoldCo's subsidiaries in addition to its standalone performance. Softlogic Life Insurance, the star performer of the Group and the second largest Life Insurance Company in Sri Lanka in terms of Gross Premium Written, demonstrates robust financial strength with GPW of LKR~23bln as at End-Dec'22 and a bottomline of LKR~2.7bln in 9MFY23. Meanwhile, Softlogic Finance, represents a weakened financial outlook primarily owed to subdued credit quality and liquidity crises exacerbated by tough economic conditions. Consequently, the performance of the HoldCo is adversely impacted since profits from its Equity Investments have narrowed, finance costs have shot up and external debt to contain the deterioration have gone exorbitantly high. The debt-to-equity ratio of the HoldCo has climbed to an alarming level of ~77% as at End-Dec'22. Management's recourse to reduce the rising financial risk is imperative. The HoldCo is eyeing to divest its major equity stakes in certain investments as the remedial strategy to generate cash inflows and reduce leveraging. The investments under consideration include Softlogic Finance and Softlogic Life Insurance, the two major contributors of dividend income for the HoldCo. Cash flows generated from the divestment would provide the much needed support to the HoldCo to unload its mounting debt burden and ease-up its liquidity position. Given strong relationship with financial institutions, refinancing of the current debt profile is expected. With a highly leveraged capital structure and weak coverages, the current financial risk of the HoldCo remains elevated. Therefore, positive out-turn of the expected divestments is critical, especially considering the overall economic conditions.
The rating is dependent on the HoldCo's ability to successfully execute its planned strategy that would improve its financial profile, particularly in terms of its capital structure and liquidity. Moreover, continuity of recurring income stream to support the Group in times of need is critical.
Softlogic Capital PLC ("the HoldCo"), is a Public Limited Company incorporated under the Companies Act No. 17 of 1982 and re-registered under the Companies Act No. 07 of 2007 in 2007. The registered office and principal place of business of the Company is located at No. 14, De Fonseka Place, Colombo 05. Mr. Iftikhar Ahamed, who is the Managing Director of Softlogic Capital PLC, overlooks the overall financial services sector and has been in the industry for over 30 years. He is supported by a team of qualified individuals.