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LRA Assigns 'Rating Watch' to First Capital Treasuries PLC's Instrument, Maintains Instrument Rating.

Rating Type Debt Instrument
Action Maintain Initial
Long Term A- A-
Outlook Stable Stable
Rating Watch Yes -

LRA has assigned ‘Rating Watch’ to the instrument on the rating of First Capital Treasuries PLC (FCT). This is in the wake of the announcement by CSE, on Peoples Leasing & Finance PLC's potential shares acquisition in First Capital Holdings PLC (FCH), the holding company of FCT. The execution of the sales purchase agreement has been affirmed with target price of LKR 4,958mn. The transaction remains subject to approval by the Central Bank of Sri Lanka. People’s Leasing & Finance PLC will acquire 33% shareholding from Janashakti Holding and will also have presence on the board. LRA is closely following the transaction and will consider all aspects once the transaction is finalized. FCT is a prominent Primary Dealer within the financial service industry. The Company draws stability from its Holding Company, which falls under Janashakthi Group. The credit risk is minimal for the Company as a result of investing 98% of its assets in government securities. However, FCT is exposed to unfavorable market conditions, particularly with respect to significant interest rate risk. The beginning of declining interest rates during 2023 is expected to release the pressure on Company’s profitability.
Rating is dependent upon eventual outcome of the potential acquisition by People's Leasing & Finance PLC and impact it will have on FCT business. Certain synergies are expected from this acquisition and their impact will be reviewed accordingly.

About the Entity
First Capital Treasuries PLC (FCT) was incorporated on 19 August 1982 as a public limited liability company under the Companies Act, No. 07 of 2007. The Company is a subsidiary of First Capital Limited, which is a subsidiary under First Capital Holdings PLC, the Janashakthi Umbrella. FCT has a well-balanced board of seven members reflecting four Non-Executive Independent Directors and three Non-Executive Non-Independent Directors. The management team is headed by Mr. Sachith Perera, who is the CEO (Chief Executive Officer) of the Company.

About the Instrument
FCT currently has LKR 750mn, listed, rated, subordinated, unsecured, redeemable debentures each worth LKR 100/-. The tenure of the debentures will span for a period of 60 months. The debenture was opened for subscription on 27th January 2020 and closed on 30th January 2020. The objective of the issue is to increase the Tier II Capital of the Company and thereby enhance the Capital adequacy position.

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.