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LRA Assigns Initial Entity Rating to Janashakthi Limited

Rating Type Entity
(29-Mar-23 )
Action Initial
Long Term BB-
Outlook Negative
Rating Watch -

The rating rationale of Janashakthi Limited ( Janashakthi and The Company) reflects the holding company status as Janashakthi operates under a holding company structure with an aim to acquire and consolidate some of the group's investments in the Insurance, Non-Banking Financial Institutes, and Financial Services sectors. The Company primarily derives income from the profit share of underlying investments. The profitability and margins have reduced due to constrained profits emanating from the subsidiaries. The Company incurs high financial charges from the debt acquired for financing the investment portfolio. The rating is impacted by the weakening coverage ratios of Janashakthi Limited due to the high-interest costs which stood at 0.6x for 9MFY23, compared to 0.3x in FY22. This is expected to be further impacted due to the recent interest rate increase. The debt level of the holding company remained high (LKR 23.83bn as of Dec 22). Currently, the Company's financial matrix displays a weakened outlook, especially in the long-term, due to its narrowed investment income streams and mounting debt liabilities. The leverage ratio of the Company clocked in at ~83% (End-Dec'22). Lower-income flows to fulfill debt obligations on its current debt has also pushed the Company's bottom-line in the red zone and eroded its cashflows. The Sponsors, taking cognizance of the situation, envisage diverse inflows from strategies majorly including dilution of their personal shareholding in the Company, divestment of investment in one of the subsidiaries, settlement of related party receivables, and sale of investment property. The probability of projected cash inflows is, however, highly dependent on a multiple factors such as economic conditions and investor confidence as well as specific transaction modalities. Materialization of these transactions is a significant consideration for the rating. Furthermore, the Company's past record of materializing on its committed plans is a factor duly taken into account. On the Issuer front, the ratings of the Company reflect its Investment Holding Company (HoldCo) status as it operates under a Holding Company structure. The profitability and margins of the Company have eroded in recent times due to constrained dividend inflow emanating from the subsidiaries.
The rating is dependent on the Company's ability to successfully execute its planned strategies to generate cash inflows that would reduce its debt leveraging. Moreover, improvement in the debt matrix to off-load mounting debt repayments through recurring income streams is imperative.

About the Entity
Janashakthi Limited is a limited liability company incorporated and operating in Sri Lanka since May 1994. The registered office and place of business of the Company are in Colombo. The Company's investments currently comprise core investments in its six subsidiaries i.e., Janashakthi Insurance PLC, Janashakthi Capital Limited, Orient Finance PLC, First Capital Holdings PLC, Janashakthi Corporate Services Ltd, and Janashakthi Business Services (Pvt) Ltd. The Company is 100% owned by Schaffters (Pvt) Limited, with the ultimate beneficiaries being two brothers, Mr. Ramesh Schaffter and Mr. Prakash Schaffter. Both brothers hold equal stakes, i.e., 50% ownership of Schaffters (Pvt) Limited. Janashakthi Limited is the ultimate parent company of the Group and it owns 79.03% of its main subsidiary Janashakthi Insurance PLC which is listed and has a market capitalization of LKR 5.1bn. The Company owns 93.69% of Orient Finance PLC which has a market capitalization of LKR 1.8bn. The Company has ownership of 83.01% in First Capital Holding PLC with a market capitalization of LKR 11.3bn.

About the Instrument

The primary function of LRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. LRA comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. LRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.