First Capital Treasuries charts next growth phase via IPO

• Strategic effort to broaden company’s ownership base and bring in more liquidity
• Aims to strengthen brand identity and ‘performance first’ culture

First Capital Holdings PLC (First Capital), a member of the Janashakthi Group, is focused on delivering ‘performance first’ through its operations as a primary dealer, stockbroker and in

corporate advisory, debt structuring and wealth management. With over three decades of expertise in providing capital market solutions, First Capital is the only listed full-service investment institution in 

Sri Lanka continuing to set benchmarks in the non-bank financial services space. First Capital Treasuries PLC (FCT), the Group’s subsidiary and primary dealer division, accounts for the highest amongst standalone primary dealers raising debt for the Government. The company is now gearing up for an Initial Public Offering set to open on 6 December. In this interview, First Capital Holdings PLC Director/CEO Dilshan Wirasekara speaks on the investment climate in Sri Lanka, the company’s decision to list FCT on the DiriSavi Board, and the value and benefit of investing in Government securities in the current economic environment:

First Capital Holdings Director and CEO Dilshan Wirasekara

Q: What is the First Capital Treasuries PLC story so far?

First Capital Treasuries (FCT) is Sri Lanka’s oldest operating non-bank primary dealer. We were also the first primary dealer (PD) to raise Subordinated Debt through Listed Debentures on the CSE. We recorded a five-year average ROE of 29% and 10-year Dividend payout of 50% and have continued our position as the leading non-bank primary dealer raising the highest volume of debt for the Government, taking up around 18% of the total value of treasury bonds issued among primary dealers in 2020. 

Our capital base of over Rs. 4 billion is the highest among stand-alone non-bank primary dealers in Sri Lanka and we are also the highest rated non-bank primary dealer in Sri Lanka with a credit rating of [SL] ‘A’ Stable outlook assigned by ICRA Lanka Ltd.

Q: What prompted First Capital Treasuries to go for an IPO? 

 The IPO is part of our strategic efforts to broaden the company’s ownership base, bring in more liquidity and strengthen its brand identity. This enables the company to return to the market at any given time to raise additional capital utilising multiple avenues available for a listed entity on the CSE, subject to the receipt of relevant regulatory approvals. 

FCT is already listed as a Debt entity and the company’s financial information is in the public domain, making us very transparent to investor scrutiny. In addition, we are a company with a robust governance structure in place meeting the stringent regulatory frameworks of both the Central Bank of Sri Lanka and the Colombo Stock Exchange. Therefore, we are able to boost investor confidence which in turn translates into heightened interest in the company. 

Ultimately, we want to give an opportunity to all our stakeholders and loyal client base to be part of ‘performance first,’ and the journey towards growth and success which we foresee for FCT.

Q: Given the current economic environment, both globally and locally, what is the value and benefit of investing in Government securities?

If you consider the investment landscape in Sri Lanka, the Government securities market is the largest at Rs. 8.6 trillion, and most liquid segment of the entire capital market. It is also bigger than size of the listed equity market, which is currently at Rs. 5 trillion. This creates immense potential to grow from short term to medium term, taking into consideration the Government’s continued need for more funding. When you factor in Sri Lanka’s potential to achieve economic growth and expand GDP, the demand for Government securities will be always present. Therefore, it’s a segment every investor should look at getting exposure to.

Q: In your opinion, does the short-term financial performances of the company have an impact on the IPO itself?

The way the primary dealing business works, returns are volatile and cyclical depending on the interest rate movements. When interest rates rise, primary dealers are more vulnerable to a decline in the value of their investment portfolio. However, when interest rates start declining, primary dealers can make more money. 

Primary dealers are capable of leveraging about 10 times their capital, and FCT having a large capital base of over Rs. 4 billion in shareholders’ funds makes it well equipped to leverage more and generate much higher returns. Hence, over the medium to long term, there’s always potential for substantial profits. 

Primary dealers have always maintained a higher Dividend Payout (DPO) as their requirement to retain profits is less. FCT’s 10-year dividend was at 50% and, therefore, there’s room to benefit from a higher dividend yield over the medium to long term.

Q: What is the strategic direction for the company post-IPO?

 At First Capital, across all our product offerings, we have always believed in delivering performance first to all our stakeholders. With the First Capital Treasuries IPO we intend the same; to deliver performance first to all our stakeholders and to share that success going forward with them.