LOLC share price soars on pending Rs. 108 b deal

The share price of LOLC Holdings Plc shot up yesterday to a new 54-week high with investors toasting the impending official announcement on the mega Rs. 108 billion sale of its stake in Cambodia micro finance company.

LOLC topped the gainers list yesterday up 22.86% or Rs. 33.30 to close to Rs. 179. It had an intra-day high of Rs. 182.10. 

Yesterday’s closing bettered the previous 54-week highest of Rs. 133.90. 

Around 1.4 million LOLC shares changes hands via 2,240 trades generating Rs. 237.3 million in turnover.

On Thursday Korean firm KB Kookmin Bank said it is to buy LOLC’s Cambodian microfinance arm for a staggering $ 603.4 million or Rs. 108.5 billion, subject to regulatory approval. KB Kookmin Bank said its Board has agreed to buy 70% stake in Cambodia’s PRASAC Microfinance Institution for $ 603.4 million from LOLC.

PRASAC Microfinance is the No. 1 microfinance deposit-taking institution, taking up over 40% of market share in Cambodia with 177 branches.

A report in Korea Herald stated that KB Kookmin will close the deal within three months, after due diligence and approval from financial authorities in Korea and Cambodia.

The deal is expected to allow KB Kookmin to consolidate its consumer banking network in the Southeast Asian nation. Operating six bank branches, KB Kookmin earned preapproval in Cambodia for the acquisition in May.

KB Kookmin said it plans to buy the remaining 30% stake in the institution at least two years after the transaction.

Daily FT learns LOLC will make a formal disclosure today following an agreement signed with relevant parties yesterday. 

On Friday investors, apparently seeing new found value and demand, yesterday pushed LOLC shares to third highest gainer, percentage wise. LOLC closed at Rs. 145.70, up by Rs. 16.70 (or 13%) whilst it hit an intra-day high of Rs. 148.90. Little over a one million shares changed hands via 1,217 trades for Rs. 149.3 million with bulk of the selling coming from foreign investors. For the week, LOLC gained by Rs. 19 or 15%.

Despite media reports of impending sale as revealed by LOLC Deputy Chairman Ishara Nanayakkara in a Bloomberg interview, LOLC has been less revealing officially.

Following the publication of Bloomberg article in FT, in a filing to the CSE on 12 December, LOLC said upon certain parties indicating their interest in acquiring a stake in PRASAC Microfinance, Cambodia, LOLC has been in the process of exploring possibilities of a sale of whole or part of its holding. In any event, the sale will require prior approval of National Bank of Cambodia.

December).

The Cambodian operations are part of LOLC’s strategic and profitable diversification in the Southeast Asian region. 

The regional expansion of the Group has delivered extremely strong results in diversifying and balancing the exposure LOLC has in the local market. To this effect, 85% of LOLC pre-tax profit is currently derived from investments in Cambodia, Myanmar, Pakistan, Indonesia and Philippines. 

This growth momentum is evident from the LOLC Group’s maiden overseas investment in PRASAC, which has grown to become the largest microfinance institution in the dollarised Cambodian economy. With an ROE and ROA of 28.40% and 3.64%, respectively, a portfolio of $ 2.2 billion, a deposit base of $ 1.5 billion, and a significant profit before tax contribution to the Group’s bottom line, PRASAC offers substantial return on investment in dollar terms through the Group’s 70% holding in the Company. It has a customer base of over 400,000.

LOLC’s foreign investments in financial services sector account for Rs. 593 billion as total assets in the books of LOLC and have contributed a Profit After Tax of Rs. 17.9 billion to the Group for the year ended 31 March 2019. The lending portfolio of the foreign businesses amounts to Rs. 497 billion with a deposit base of Rs. 311 billion. 

LOLC in its FY19 Annual Report stated that it was a matter of pride that the Group’s overseas expansion has been undertaken purely on the strength of the financial services excellence and knowhow coupled with IT expertise which it exports to its overseas operations.