ICRA reaffirms A- rating to LOLC Rs.5bn debenture issue
ICRA Lanka Limited, a wholly-owned subsidiary of ICRA Ltd, a group company of Moody’s Investors Service, has reaffirmed the [SL]A-(pronounced SL A minus) rating with a stable outlook to the (revised) proposed Rs.5 billion long-term senior unsecured, to be listed, redeemable debenture programme of Lanka ORIX Leasing Company PLC (LOLC).
LOLC has decided to revise the amount of the said debenture issue from Rs.7 billion (with provision for the amount to be increased to Rs.12 billion) to Rs.5 billion.
ICRA Lanka already has an outstanding issuer rating of [SL]A- for LOLC.
The company’s existing senior unsecured debentures of Rs.1.25 billion is also rated at [SL]A-; the ratings carry a stable outlook. Given the significant operational and financial linkages with the subsidiaries (especially pertaining to financial services), ICRA Lanka continues to take a consolidated rating view of the HoldCo and the key asset financing subsidiaries.
The rating factors in the LOLC group’s long track record in the retail finance sector, its leadership position in the Sri Lankan retail finance market, professional and experienced management team and adequate risk management systems with a strong retail franchise.
The rating also derives support from the committed support and oversight from its key investor–ORIX Corporation of Japan (rated Baa2 with stable outlook by Moody’s), which has a 30 percent stake in the entity.
The group’s performance is largely dependent on its key financial service subsidiaries due to the low contribution from the non-financial service subsidiaries; increase in NPAs of the financial services subsidiaries in the recent past, although in line with the increase witnessed in the industry and the consequent pressure in the profitability levels are the key rating constraints.
At group level it would be important to improve the overall asset quality of the key financial services subsidiaries, through effective management of incremental slippages and focused recovery initiatives going forward.
At the Holdco’s level (Standalone), ICRA takes note of its moderate earnings profile due to the low contribution from non-financial services businesses. Improvement in gearing levels at the Holdco has been noticed over the past FY, further ICRA Lanka notes that the said debentures would be used to re-finance existing short-term debt at the Holdco level, which would improve the overall liquidity and cost of funds.