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Tharika Prabashwari Kodikara
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  • Methodology | Holding Company Rating | Jun-22

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  • Sector Study | Holding Company | Oct-22

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LRA Assigns Initial Entity Rating to LOLC Holdings PLC

Rating Type Entity
Action Initial
Long Term A
Outlook Stable
Rating Watch -

The rating reflects LOLC Holding's (the HoldCo) robust position as the ultimate Holding Company of the LOLC Group (the Group) - one of the largest conglomerates of Sri Lanka in terms of asset base (LKR1.7trn - Dec'22) and profitability (PAT LKR26bln - 9MFY23). The HoldCo has a diversified portfolio of investments spanning across sectors in the local and international markets. The Group has presence in over 20 countries primarily in the Southeast Asia, South Asia, Middle East and African Region. At the broader level, the Group's operating segments are clustered into financial and non-financial segments, with financial segment possessing the higher share of 64% in the Group's revenue. In its non-financial segment, the Group holds diversified interests in various sectors including Manufacturing and Trading, Agriculture and Plantation, Leisure, Construction and Real Estate, Digital Empowerment, Research and Innovation, Strategic Investment and Mining. With over 200 subsidiaries, the Group's structure is well-poised to place most of the entities in different sub-groups within the Group, while some subsidiaries are directly owned by the HoldCo itself. The Group's key competitive strength lies in its increasing penetration in the global market which provides impetus towards robust growth and performance. Additionally, global operations also protect against risks associated with tough operating conditions in the domestic economy. The Group's overall share from global operations has been gradually increasing and was recorded at 45% of the revenue in FY22. This is expected to enhance further, going forward. The assigned rating reflects the cumulative impact of the financial performance of the Group in addition to the standalone performance of the HoldCo. The Group's financial risk profile is characterized by a sound capital structure and liquidity position, coupled with modest revenue growth. The profitability remains strong primarily on account of geographical and sectoral diversification. On a standalone basis, the HoldCo's capital structure displays an improved outlook with debt-to-equity ratio reducing over the years from 43% in March'21 to 36% in Dec'22, although borrowings remain sizeable. Debt coverage ratios have, however, come under pressure lately attributed to exceptionally high finance cost and lower cashflow from operations (0.2x in 9MFY23), despite net profits recording a growth of 10% in 9MFY23 (LKR24bln - 9MFY23) compared to the same period last year (LKR22bln - 9MFY22). The rating also factors in the HoldCo's strong governance framework designed to manage and oversee the strategic direction of its subsidiaries. A well-chalked out Investment policy is in place, which supports the management in steering the direction of the Group's investment decisions. Moreover, the HoldCo also provides function-based services to its subsidiaries, jointly controlled entities and associates, representing a strong oversight of its sub-groups and their subsidiaries.
The ratings are dependent on the Group's ability to uphold its market position and growth trajectory, especially in the global market, while maintaining strong financial discipline. Meanwhile, enhanced cashflows from operations are imperative to improve debt coverage at the HoldCo level.

About the Entity
LOLC Holdings PLC ("the HoldCo") is a Public Quoted Company incorporated in 1980. The HoldCo became the Holding Company of the Group in 2011. The largest shareholding of the HoldCo lies with Mr. I C Nanayakkara with an ownership of around 80%. Mr. I C Nanayakkara is one of Sri Lanka’s leading entrepreneurs coming from a strong business background. The HoldCo's Board comprises 06 members; three non-executive and three executive directors, with two independent directors.

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's 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.