Tharika Prabashwari Kodikara
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Methodology | Debt Instrument Rating | Jun-22
Sector Study | Holding Company | Oct-22
LRA Assigns Initial Instrument Rating to LOLC Holdings PLC - LKR 5bn Listed Senior Unsecured Redeemable Debentures
|Rating Type||Debt Instrument|
The rating of the debenture highlights the unsecured senior structure, where the debenture will rank after all the claims of the secured creditors and preferential claims under any statutes governing the Company, but in pari passu to the claims of unsecured creditors of the Company. Consequently, the debt instrument is rated equivalent to the entity rating. LOLC Holding's (the HoldCo) as the ultimate Holding Company of the LOLC Group (the Group) - one of the largest conglomerates of Sri Lanka in terms of its asset base (LKR1.7trn - Dec'22) and profitability (PAT LKR26bln - 9MFY23). The HoldCo manages a diversified portfolio of investments spanning across sectors in the local and international markets. 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 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 with a sound capital structure and liquidity position, coupled with modest revenue growth and wholesome profitability, 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. The rating also factors in the HoldCo's strong governance framework designed to manage and oversee the strategic direction of its subsidiaries. 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 keeping up with a sound financial discipline. Meanwhile, enhanced cashflows from operations are imperative to improve debt coverage at the HoldCo level.
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.
LOLC Holdings PLC currently has LKR 5Bn, listed, rated, senior, unsecured, redeemable debentures each worth LKR 100/-. The tenure of the debentures will span for a period of 5 years. Type A Debenture coupons are paid semi - annually at the fixed rate of 15% p.a. (AER – 15.56%) and Type B Debenture coupons are paid semi - annually at a floating rate of weekly AWPLR + 2.5% p.a. The objective of the issue was to finance the five (05) year Rated, Senior, Unsecured, Redeemable Debentures of LKR 5 Bn matured on 24th November 2019.