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LRA Assigns Initial Instrument Rating to Softlogic Capital PLC - LKR 1.5bn Listed, Senior, Unsecured Redeemable Debentures

Rating Type Debt Instrument
Action Initial
Long Term BBB-
Outlook Stable
Rating Watch -

The rating of the debentures highlights its senior unsecured structure. The seniority of the claims warrants that in case of winding up of the Company rank after all the claims of secured creditors and any preferential claims under any statutes governing the Company but pari passu to the claims of unsecured creditors of the Company and shall rank in priority to and over any subordinated debt of the Company and the claims and rights of the shareholders of the Company. Softlogic Capital PLC (SCPLC or the Company) is a listed investment holding company incorporated in April 2005. The assigned ratings incorporate a comprehensive operating track record with a modest presence in the life insurance sector, non-banking financial services sector, stock brokering, and asset management sector. The rating further takes into consideration the factor that SCPLC is looking at divestment of its stake in Softlogic Finance PLC (SFPLC), and Softlogic Life Insurance PLC (SLIPLC) the two companies which have been the major contributors of dividend income and income generators to the HoldCo - SCPLC. The net profitability of SCPLC declined to a loss of LKR 964.75mn in 9MFY23 (6MFY23: LKR -545.62mn) owing to high amounts of the financial cost incurred. The financial risk profile of the Company has displayed high leveraging with a 77% being reported for 9MFY23. The rating further takes into consideration the additional capital requirement SCPLC will have to pump into SFPLC in case of weakening performances.
The rating is dependent on the Company's ability to sustain improvement in its financial performance given the current macroeconomic challenges. Meeting regulatory capital requirements at the subsidiary level will remain key for any movement in ratings alongside the Company's ability to materialize the disposal of its subsidiary.

About the Entity
Softlogic Capital PLC (SCPLC or ‘the Company’), 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. Softlogic Capital PLC was incorporated as Capital Reach Holdings Limited in April 2005 as an Investment Holding Company. Subsequently, in August 2010, Softlogic Holdings PLC acquired the Company with the objective to form a fully-fledged finance arm to the greater Softlogic Group. The Company’s ordinary shares were listed on the Diri Savi Board of the Colombo Stock Exchange in September 2011.

About the Instrument
SLC currently has LKR 1.5bn, listed, rated, senior, unsecured, redeemable debentures each worth LKR 100/-. The tenure of the debentures will span for a period of 60 months. Type A, B, and C pays a fixed interest rate, while type D pays a floating interest rate. There were 2 objectives set out for the issue with objective 01 being an allocation of LKR 600mn to the rights issue carried out by Softlogic Finance PLC. The 02nd objective being the remaining LKR 900mn, LKR 500mn is to be allocated for future acquisitions/investments, and up to LKR 400mn will be utilized to settle the short-term debt. However, the Company wishes to re-allocated up to LKR 400mn which was originally identified for settlements of short-term debt for investments/acquisitions, if the value of the identified investments exceeds the aforesaid LKR 500mn originally allocated for future acquisitions/investments.

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.