ICRA Lanka affirms ‘A-‘ credit rating with Stable Outlook for LOLC and subsidiaries LOFC, CLC

Friday, 15 August 2014 00:52 - - {{hitsCtrl.values.hits}}

ICRA Lanka ltd., a wholly-owned subsidiary of ICRA Ltd., a group company of Moody’s Investors Service, has in its annual credit review affirmed the ‘[SL] A-’ credit ratings for Lanka ORIX Leasing Company PLC (LOLC) and its key financial services subsidiaries Lanka ORIX Finance PLC (LOFC) and Commercial Leasing & Finance PLC (CLC) with a stable outlook. LOLC Group Managing Director/CEO Kapila Jayawardena stated that he was pleased with the continued confidence placed on the group by credit institutions, which is being reflected in the credit rating of the holding company and its subsidiary companies. The report stated: “The ratings continue to factor LOLC Group’s long track record in the retail finance sector, its leadership position in the Sri Lankan retail finance market, professional and experienced management team and adequate risk management systems with strong retail franchise. The rating also derives support from the committed support and oversight from its largest investor–ORIX Corporation of Japan (rated Baa2 with stable outlook by Moody’s), which has a 30% stake in the entity. ICRA Lanka takes note of the consistent progress made by the management to de-leverage the Holdco as the reported gearing levels improved from 0.6 time as on end Mar-13 to 0.4 times by end Mar-14 through the transfer of the residual lending portfolio to its financial services subsidiary and reducing intra-group exposures. ICRA Lanka however notes that the group level gearing indicators have increased over the past two FYs from 2.16 times as of end Mar-12 to 2.65 times as on end Mar-14. Ability of the HoldCo and the LOLC group to improve on their operating margins while reducing the standalone leverage would be critical from a rating perspective.” Jayawardena further stated that despite the volatile market conditions, the Group was able to maintain healthy operating margins whilst having a strong long term funding pipeline in place. Moreover, ICRA Lanka noted that “the group has been able to secure longer tenure borrowings at favourable rates, which is expected to support the overall liquidity profile and profitability going forward. Group level earnings recovered during the FY2014 with the ROAA improving to 1.84% from 1.66% in FY2013 largely on account of improved margins in the financial services subsidiaries and improved financial performances of the non-financial services businesses.”