LOLC Holdings PLC

ICRA Lanka assigns [SL]A rating for the proposed Senior debt of LOLC Holdings PLC

InstrumentRated Amount (LKR Mn)Outstanding Amount (LKR Mn)Rating Action
Proposed Senior Unsecured Unlisted Rated Redeemable Debenture Programme2,0002,000[SL]A (Stable); Assigned
Issuer RatingN/AN/A[SL]A (Stable); Outstanding
Commercial Paper Programme3,0003,000[SL]A1; Outstanding
Listed Senior Unsecured Redeemable Debenture Programme5,0005,000[SL]A (Stable); Outstanding
Listed Senior Unsecured Redeemable Debenture Programme2,7502,000[SL]A (Stable); Outstanding
Listed Senior Redeemable Debenture Programme10,00010,000[SL]A (Stable); Outstanding

Rating action

ICRA Lanka Limited has assigned the issue ratings of [SL]A with Stable outlook for the proposed LKR 2,000 Mn Senior Unsecured Unlisted Rated Redeemable Debenture programme of LOLC Holdings PLC (“LOLC’’/ “the Company’’).

ICRA Lanka has an outstanding issuer rating of [SL]A with Stable outlook for LOLC Holdings PLC. ICRA Lanka also has outstanding issue ratings of [SL]A with Stable outlook for LKR 5,000 Mn Senior Unsecured Redeemable Debenture Programme, [SL]A with Stable outlook for the outstanding LKR 2,000 Mn Senior Unsecured Redeemable Debenture Programme, [SL]A with Stable outlook for the outstanding LKR 10,000 Mn Senior, Redeemable Debenture Programme and the issue rating of [SL]A1 rating for the LKR 3,000 Mn Commercial Paper Programme of the Company.  

Rationale

ICRA Lanka has taken a consolidated view of the performance of the LOLC group, which has interests in various segments including financial services, insurance, manufacturing, trading, plantations, renewable energy and leisure for arriving at the ratings. However, the group performance is primarily driven by the finance sector of the group and hence the ratings reflect the same.

The ratings factor in the group’s long track record and leadership position in the Sri Lankan NBFI sector, its experienced management team, commensurate risk management systems and its adequate funding profile. The ratings also take comfort from the improved asset quality levels of the NBFIs of the Group, particularly at LOFC and CLC entity levels, which is attributable to aggressive recovery efforts by the respective Companies. Furthermore, the ratings continue to take comfort from the healthy capitalization and low gearing levels post the PRASAC divestment. Group gearing reduced to about 2.4 times as in March 2021, from 5.0 times in March 2020. LOLC has access to funding, through its diversified funding sources, which includes local and foreign funding partners. However, ICRA Lanka takes note of the stretched operating profit mainly on account of increased credit cost (Provisioning/ATA) and moderated Net Interest Margins (“NIM”) and will remain a key monitorable, going forward. The Group’s credit cost increased to 2.69% in FY2021 in comparison to 1.63% in FY2020 and 1.51% in FY2019. Group’s NIM moderated to 3.66% in FY2021 vis-à-vis 5.23% in FY2020 and 5.78% in FY2019. The Profit after Tax (PAT) of the Group improved significantly in FY2021 as a result of the gain on divestment of PRASAC which amounted to LKR 42.9 Bn.

While ICRA Lanka takes cognisance of the diversification to newer geographies (Cambodia, Myanmar, Indonesia and Pakistan) over the recent past by the LOLC group, ability to manage country specific risks across businesses and regulatory cycles would be crucial from a rating perspective. Further, ICRA Lanka would continue to monitor the performances of the non-financial service entities and their contribution to the overall group going forward.

For the detailed rating rationale, please refer the rationale dated December 08, 2020:  https://www.icralanka.com/rationale/icra-lanka-assigns-sla-rating-for-the-proposed-senior-debt-of-lolc-holdings-plc/

About LOLC:

Setup in 1980, LOLC Holdings PLC has evolved itself from a financial services provider to a holding company which also has interests in manufacturing, trading, plantations, leisure and energy. The ORIX Corporation of Japan which had 30% of LOLC since its inception, had divested the same in 2018. The group has diversified geographically into Cambodia, Myanmar, Indonesia, Pakistan, Maldives and in the African region. On April 13, 2020, LOLC Group divested 70% of its stake in PRASAC for a total consideration of about USD 603 Mn. The investment was held by LOLC International Private Limited (LOLCIPL), a fully owned subsidiary of LOLC holdings, incorporated in Singapore.

In FY2021, LOLC group reported a consolidated PAT of LKR 53.2 Bn on a total asset base of LKR 870 Bn, as compared to the PAT of LKR 19.8 Bn on a total asset base of LKR 1,336 Bn in FY2020 and PAT of LKR 19.6 Bn on a total asset base of 1,044 Bn in FY2019. The consolidated asset base moderated following the above divestment.

Key financial indicators of LOLC Holdings PLC (Consolidated)
In LKR MnFY2019FY2020FY2021*
Net Interest Income[1]53,90462,17440,349
Profit after [2]Tax19,63619,79253,197
Reported net worth152,220212,577232,789
Loans and Advances707,278897,447412,838
Total Assets1,043,7471,335,919869,541
Return on Equity14.56%10.85%23.89%
Return on Assets2.10%1.66%4.82%
Reported Gearing (times)5.55.02.4
*Unaudited Financials   
Rating history for the last three years:

Analysts

Sachini Costa
+94-774781595
sachini.costa@icralanka.com  

Sahil Udani
+91-22-61143429
Sahil.udani@icraindia.com

[1] FY2020 includes discontinued operations

[2] PAT for FY2021 includes the capital gain of LKR 42.9Bn from the disposal of PRASAC Microfinance Institution Limited


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