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LRA Assigns Preliminary Instrument Rating to LOLC Holdings PLC - LKR 15bn Commercial Paper

Rating Type Commercial Paper
Action Preliminary
Short Term A1
Outlook Stable
Rating Watch -

The rating reflects LOLC Holding's (the HoldCo) position 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 (LKR~1.5trn – FY23) and profitability (PAT LKR~21bln - FY23). 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. 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 rating is 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.

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.

About the Instrument
LOLC Holdings PLC is in the process of issuing LKR15bn Commercial Papers (CP), a short-term, non-collateralized (Unsecured) debt instrument. The tenure of the commercial paper will span from 1 month to 12 months depending on the appetite of the investors. The Commercial Papers will be rolled over at maturity. The purpose of the CP is retire some outstanding short term borrowings amounted to LKR 33bln. The indicative rate of the CP is around 14.20% - 14.50%.

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.