UB Finance Company Limited

Update on UB Finance Company Limited

Update

ICRA Lanka Limited, subsidiary of ICRA Limited, a group company of Moody’s Investors Service, notes that UB Finance Company Limited’s (“UBF” or “The Company”) minimum core capital, tier-I capital ratio and total capital ratio continue to remain below regulatory levels as it was unable to secure external equity by Jun-19, which was previously envisaged. The Company continues to have a cap on its lending and deposit sourcing, which was imposed by CBSL in Jan-19. ICRA Lanka takes into consideration the commitment from Union Bank of Colombo (UBC; rated [SL]BBB/stable) via an undertaking letter that in case UBF is unable to secure capital from an external investor by Sep-19, then UBC would infuse capital, to meet the statutory capital requirements of UBF for FY2020. In view of the commitment from the Board of UBF and from UBC, Central Bank of Sri Lanka (“CBSL”) has also granted extension to UBF till December 31, 2019 to meet various statutory thresholds.

UBF’s Tier 1 and total CAR stood at 3.64% and 5.49% in Dec-18 as compared to the regulatory requirement of 6.00% and 10.00% which further increased to 6.50% and 10.50% in Jul-19. Gross NPA ratio of the company was 18.6% in Dec-18 as compared to 12.7% in Dec-17.

ICRA Lanka would closely monitor the extent of capital infusion, changes in ownership structure, liquidity position, and asset quality performance, over the near term, before taking further rating action. The rating continues to factor in UBF’ modest scale and subdued earnings profile.

The previous detailed rationale was dated May 27, 2019.

Analytical approach: For arriving at the ratings, ICRA Lanka has applied its rating methodologies as indicated below. Financial, operational and management support from UBC is factored into the issuer rating of UBF.

Links to applicable criteria:  ICRA Lanka’s Credit Rating Methodology for Non-Banking Financial Institutions

About the company:

UB Finance Company Limited (UBF) was formerly known as The Finance & Guarantee Co. Ltd. It was incorporated in 1961 and, operated as a Finance and Real estate development company. In 2011, Union Bank of Colombo (UBC) acquired majority stake in the Company with a capital infusion of LKR 600 Mn. The Company received a further capital infusion of LKR 500 Mn from a private equity investor- ShoreCap II Ltd.  As in April 2018, UBC and ShoreCap II Ltd held about 73% (81% voting rights) and 12% (13% voting rights) respectively in UBF. Initially, UBF was involved in real-estate development and financing. The Company still has some of its old loan portfolio, which is completely in the NPA category. Presently, the Company focuses on retail asset classes (vehicles loans/ leases/ hire purchase) and working capital finance.

During the year ended March 31, 2019, UBF reported a PAT of LKR 6 Mn (unaudited) on a total asset base of LKR 11.5 Bn (unaudited) as compared to a PAT of LKR 72 Mn on a total asset base of LKR 11.2 Bn in the previous financial year.

Key financial indicators

Rating history for last three years:

ANALYST CONTACTS 

Mr. Dasith Fernando

+94 11 4339907

dasith@icralanka.com

Mr. Vidura Welathanthri

+94 11 4339907

vidura@icralanka.com

Mr. A.M Karthik

+91 44 45964308

a.karthik@icraindia.com

RELATIONSHIP CONTACT

Mr. W. Don Barnabas  

+94 11 4339907

wdbarnabas@icralanka.com


Disclaimer
ICRA Logo

Subsidiary of ICRA Limited

CORPORATE OFFICE
Level10, East Tower, World Trade Center, Colombo 01, Sri Lanka
Tel:+94 11 4339907;Fax:+94112333307 Email:info@icralanka.com; Website:www.icralanka.com

© Copyright, 2019 ICRA Lanka Limited. All Rights Reserved. Contents may be used freely with due acknowledgement to ICRA Lanka.

ICRA Lanka ratings should not be treated as recommendations to buy, sell or hold the rated debt instruments. ICRA Lanka ratings are subject to a process of surveillance, which may lead to revision in ratings. An ICRA Lanka rating is a symbolic indicator of ICRA Lanka’s current opinion on the relative capability of the issuer concerned to timely service debts and obligations, with reference to the instrument rated. Please visit our website www.icralanka.com or contact ICRA Lanka’s office for the latest information on the outstanding ICRA Lanka ratings.

All information contained herein has been obtained by ICRA Lanka from sources believed by it to be accurate and reliable, including the rated issuer. ICRA Lanka however has not conducted any audit of the rated issuer or of the information provided by it. While reasonable care has been taken to ensure that the information herein is true, such information is provided ‘as is’ without any warranty of any kind, and ICRA Lanka in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information.

ICRA Lanka does not take any responsibility for accuracy of material/documents prepared or published by other parties based on this document. All ICRA Lanka official rating rationales are prepared in English and external parties may present or publish translated versions of the same. Readers are henceforth advised to refer to the ICRA Lanka’s official rating rationale in the event of any inconsistency found in such documents.

ICRA Lanka or any of its group companies may have provided services other than rating to the issuer rated. All information contained herein must be construed solely as statements of opinion, and ICRA Lanka shall not be liable for any losses incurred by users from any use of this publication or its contents.