LRA Assigns Initial Instrument Rating to Commercial Credit and Finance PLC - LKR 1.3bn Guaranteed Debentures

The rating of the debenture highlights the secured structure. Consequently, the debt instrument is rated above the entity rating given its guarantee. The rating takes comfort from the written guarantee provided by Hatton National Bank PLC (HNB) ) for LKR 2.3bn, being the principal sum and two interest payments at 9.00% per annum payable annually, for two Interest Periods on the said Debentures. A letter of guarantee has been issued by HNB to NSB Fund Management Co Ltd which is the trustee of the issue. On the entity level, Commercial Credit and Finance PLC (CCFF or the Company) is a licensed leasing and finance company in Sri Lanka that specializes in Hire Purchase and Finance Leases. The Company's ratings reflect its medium-sized position in the leasing industry, with total assets exceeding LKR 90bn and a market share of around 5.6%. Since 2009, the Company has experienced exceptional growth, which has stabilized in recent years as it focuses on improving book quality and changing its asset mix. Although the Company saw growth in Net Interest Income in FY22, this declined in 1HFY23 due to a sudden increase in interest rates. Despite this, the Company posted a net profit of LKR 1.1bn in 1HFY23, albeit lower than 1HFY22 (LKR 1.3bn). CCFP has successfully maintained a gross Non-Performing Asset (NPA) ratio below industry levels, but the current economic conditions in the country have impacted its gross NPA levels, which increased from around 4.67% as of FY22 to 9.9% as of 1HFY23. Asset quality is considered strong, with over 95% of loans backed by assets. However, the current economic scenario, with increased NPLs and decreased overall profitability, has limited the Company's growth. The ratings also take into account the Company's strong capitalization and CAR, which remain comfortably above regulatory requirements.
The debenture's rating is contingent on the continual written guarantee from Hatton National Bank. Any changes in HNB's rating or the removal of the guarantee will result in a negative effect on the debenture's rating.

About the Entity
Commercial Credit and Finance PLC was incorporated as a limited liability company in 1982 under the provisions of the Companies Ordinance No. 17 of 1982 and re-registered under the Companies Act No. 07 of 2007. CCFP was listed on the Colombo Stock Exchange (“CSE”) in 2011. The principal place of business is located at No. 106, Yatinuwara Veediya, Kandy. The Company is registered under the Finance Leasing Act No. 56 of 2000. The principal business activities include acceptance of deposits, granting lease facilities, hire purchase, term loans, personal loans, microloans, pawning, other credit facilities, real estate development, and related services.

About the Instrument
LKR 1,287mn Senior, Listed, Redeemable, Rated, Guaranteed Debentures currently has LKR 1,287mn Senior, Listed, Redeemable, Rated, Guaranteed Debentures each worth LKR 100/-. The debentures' tenure spans a maximum period of 5 years. The debenture was opened for subscription on 24th February 2021 and closed on 24th February 2021. The objective of the issue was to provide the necessary stable funding for 5 years and more and to further expand the lending portfolio of the entity. The debenture is guaranteed by Hatton National bank in form of a letter of guarantee for up to two interest payments and principal.