Sinhaputhra Finance to acquire other players via further capital infusion
The 40-year-old publicly listed financial institution, headquartered in Kandy, with presence in five of the nine provinces, has built a conservative portfolio and wishes to acquire companies that have similar portfolios.
Director Operations Saliya De Alwis mentioned that Sinhaputhra’s loan portfolio is backed by either cash, gold, marketable real estate or commercial vehicles that have been conservatively valued. The downside to this type of lending being that it is at much lower rates of interest yielding lower profits, than unsecured lending.
However, he mentioned that considering their experience in the financial markets over several decades, they have grown to understand that secured lending has better chances of ultimate recoverability.
The managing director added that Sinhaputhra seeks companies that mirror this portfolio but with geographic presence outside the areas Sinhaputhra Finance PLC is currently strong in. He said that looking at companies with an unsecured interest earning asset mix in his view can give extremely strong financials but with ultimate recoverability being issues, given the nature of debt recovery by courts in Sri Lanka.
Based on an analysis done of 28 registered finance companies in Sri Lanka, using their audited financial statements for the year ended March 31, 2018, Sinhaputhra’s composition of gross loan portfolio comprised of a much larger cash/gold or asset-backed portfolio. Sinhaputhra was at 90 percent, whereas the industry was at 65 percent.
The data used for the above analysis comprises of 88 percent of the total gross loan portfolio of the licensed finance companies sector and totals to a sum of Rs.964 billion. They have assumed in deriving the industry comparison that all lending mentioned as loans are unsecured, unless otherwise stated they are backed by a lien of the customer’s cash/gold/ property/vehicle, etc.
The favourable mix of such an assetbacked lending portfolio will be a tremendous benefit to the company, since the proposed provisioning basis gives a comparative advantage to the company. This would be due to the application of the expected credit loss model under the mandatory requirement of IFRS 09, since this model takes into account the realizable value of such collateral as objective evidence to reduce possible credit losses and resultant impairment provisions.
With regard to funding for such leveraged buyouts, CFO Iresha Perera mentioned that according to the board of directors, either Sinhaputhra Finance PLC will join hands with a foreign or local financial institution that wishes to engage in this approach of conservative banking or engage a multitude of like-minded investors.
Sinhaputhra Finance PLC is chaired by Prof. Amal Karunaratne and consists of two Working Directors, Ravana Wijeyeratne as Managing Director and Saliya De Alwis as Director Operations.
The board also comprises of the two Non-executive Directors Tiranjan Bulankulame and Lal Ekanayake, who are aided by the two Senior Consultants, President’s Counsel Mohan Weerakoon and Fellow Chartered Accountant K.H.K. Wijedasa.