LOLC Finance announces move to reduce stated capital to Rs. 44 b

LOLC Finance PLC has announced that its Board of Directors resolved for a reduction of the stated capital of the Company to Rs. 44 billion by offsetting the negative merger reserve amounting to Rs. 263 billion against the existing stated capital of Rs. 307 billion.

The move however will not result in any movement of cash or assets and will not have any impact on the equity of the Company.

LOLC Finance said that in March 2022, the Company amalgamated with Commercial Leasing and Finance PLC (CLC) and with LOLC Development Finance in January 2023 as part of the Central Bank’s consolidation program.

The amalgamation involved issuing new shares to CLC and LODF shareholders based on prevailing market prices. Consequently, the excess consideration from the amalgamation, totalling Rs. 263 billion was recorded as a merger reserve with the Company’s equity in compliance with accounting guidelines.

The stated capital of LOLC Finance increased due to the issuance of new shares during the amalgamation rising from Rs. 12.7 billion as of 31 March 2022 to Rs. 307 billion as of 31 December 2023.

However due to this increase in stated capital and recognition of the excess on the amalgamation as a negative reserve, the Company finds itself in a circumstance that can be classified as a serious loss of capital situation under the Companies Act as the net asset is less than half of the stated capital. This situation, though not stemming from operational losses, requires compliance with statutory obligations.

The envisaged capital reduction will rectify the current serious loss of capital situation. Upon implementation the total equity of the Company amounts to Rs. 116.5 billion will surpass the stated capital of Rs. 44 billion.

The reduction of stated capital is subject to shareholder approval at a General Meeting by way of a special 

resolution.