Nation Lanka Finance, Kanrich amalgamation conditional

The amalgamation of Nation Lanka Finance PLC with unlisted-Kanrich Finance Ltd., is conditional upon the two achieving several milestones.

As per the approval granted by the Monetary Board of the Central Bank, among conditions are the settlement of public liabilities of Kanrich Finance, completion of amalgamation before 31 March 2023 complying with regulatory requirements and requiring debt capital to be raised only from corporate entities.

Further restructuring of Nation Lanka Finance is another condition. CBSL has said present regulatory restrictions would be reconsidered upon ensuring viability and sustainability of the amalgamated entity.

Last week NFL said Monetary Board approval was to amalgamate with Kanrich under the Master Plan for Consolidation of Non-Bank Financial Institutions. The NFL will be the surviving entity.

The NFL requires Rs. 2.5 billion to comply with regulatory requirements. At present existing capital funds as at 31.03.2022 is Rs. 413 million. It concluded a Rights Issue of Rs. 1.1 billion recently.

V.R. Ramanan owns 55.5% stake in NFL and U.H. Dharmadasa holds 9.6% along with related party Ceyoka Ltd., (8%) and H.K.J. Dharmadasa (6.5%). The NFL has 13,728 shareholders.

The securities of the company were transferred to the watch list as per the enforcement rules of the CSE on 29 September 2020; 7 September 2021 and 9 September 2022, due to the emphasis of matter on going concern contained in the Independent Auditor’s Reports in the financial statements for the years ended 31 March 2020, 2021, and 2022. The emphasis of the matter on going concern was expressed by the auditors due to adverse impact on the profitability of the company as a result of continuous restrictions imposed on the company consequent to non-compliance with the minimum Core Capital requirements laid down by the regulatory authority.

The company requested to the Securities and Exchange Commission of Sri Lanka (SEC) to grant an extension to resolve the aforesaid matter (i.e. emphasis of matter on going concern) and accordingly SEC granted 5 extensions up to 31 December 2021; 31 March 2022, 30 June 2022, 30 September 2022 which has been further extended until 31 December 2022. As of 30 September 2022, retained loss of NFL was Rs. 964 million up from Rs. 545 million as of 31 March 2022. Assets amounted to Rs. 8 billion and liabilities were Rs. 7.7 billion. For six months ended 30 September 2022, NFL reported a net operating loss of Rs. 416.7 million as against a loss of Rs. 198 million a year ago.

Last week in a press statement Kanrich said the announcement of the political leadership promising the borrowers of microfinance to default on their loans, which resulted in staggering Rs. 800 million in losses to Kanrich. The company’s core capital plummeted from nearly Rs. 1.79 billion in 2018 to 1.2 billion in 2019. This was followed by the Easter attack, the COVID-19 pandemic, and the unprecedented economic crisis during 2020-2022, which had a catastrophic and long-lasting impact on Kanrich.

After some challenging years, the company re-established itself as a profit-making company in 2022 with remarkable increases in returns on equity, assets, and earnings per share of 12.8%, 3.5%, and 1.5% respectively. The Capital Adequacy ratio increased from 7% in 2021 to 20% in 2022, three times more than the regulatory requirement.

“Kanrich is at a cross-road requiring a successful transformation towards a new journey in 2023 with new goals and hopes for a bright future leading to sustainable growth, continuing profitability, and enhanced resilience,” Kanrich Finance Chairman Dr. Ravi Ratnayake said.