LRA Assigns Initial Entity Rating to Capital Alliance PLC.

Capital Alliance PLC ("CALT" or "the Company") holds strong position in the Primary Dealer (PD) market in Sri Lanka. PDs are inherently exposed to market risk due to changing interest rate environment. As of December 2023, CALT had an investment of LKR~73 bn in government securities. The rating takes into account CALT's robust capitalization, strong control processes, significant increase in profitability and profit retention on the back of substantial drop-in interest rates during FY23 and FY24 and support from the parent company ("Capital Alliance Holdings Limited" or "CALH"). The Company was affected, along with other primary dealers, due to sudden increase in interest rates in FY22. The steep decline in interest rates that followed has significantly boosted the profitability of the PD sector in the country as most of the players held high yielding treasury bonds. CALT reported net interest income of LKR~2.9bn in 9MFY24 (FY23: LKR~1.6bn, FY22: LKR~225.2mln) and profit after tax of LKR~12.9bn in 9MFY24 (FY23: LKR~2.8bn & FY22: LKR~(171.3)mln. The main reason behind this increase was net gain / loss from trading, which witnessed sizeable increase to LKR~14.8bn in 9MFY24 (FY23: LKR~609.6mln & FY22: LKR~(202.9)mln). As of 9MFY24, CALT's total equity stood at LKR~17.4bn (FY23: LKR~5.5bn & FY22: LKR~2.7bn), providing cushion against adverse contingencies. This is significantly more than the LKR~2.5bn required by CBSL for capital adequacy. The Company has defined limits to mitigate risks and an independent risk department monitors this. Going forward, the Company is expected to sustain its performance trend given stable interest rate environment. This may be impacted due to adverse movement in interest rates.
The rating is dependent on the Company's ability to maintain and further strengthen its strong market position in the sector as a non-bank PD. Sound financial practice, particularly with regards to adherence to defined limits and risk exposure are important. Additionally, sustaining profitability trends and robust capitalization is critical.

About the Entity
Capital Alliance PLC (CALT) was incorporated on August 10, 2000, as a public limited liability company under the Companies Act, No. 07 of 2007. Initially established as Capital Asia Market Ltd., it was a subsidiary of Asia Capital Ltd. initially involved in the secondary dealing of government securities. The company changed its name to Capital Alliance Ltd. in August 2002. In April 2003, CALT was appointed as a primary dealer of government securities by the Central Bank of Sri Lanka (CBSL). Its primary business operations involve primary dealing and secondary trading in government securities, In December 2021, Capital Alliance PLC was listed on the Colombo Stock Exchange.