ICRA Lanka assigns [SL]A stable outlook Issuer Rating to Lanka ORIX
Leasing
ICRA Lanka Limited, a wholly owned subsidiary of ICRA Ltd., an
associate of Moody’s Investors Service, has assigned an Issuer rating of
‘[SL] A-’ with stable outlook to Lanka Orix Leasing Company PLC. The
rating indicates adequate-credit-quality and the rated entity carries
average credit risk. The rating in Sri Lanka is assigned on an
eight-point scale developed specifically for the country and ranges from
‘[SL] AAA’ to ‘[SL] D’. This rating scale ranks the relative default
risk associated with issuers in Sri Lanka.
The rating factors in the LOLC Group’s long track record of
profitable operations, its position as the market leader in the Sri
Lankan leasing business market, professional and experienced management
team, adequate risk management systems with strong retail franchise.
The rating also takes into account 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 has taken note of the ongoing restructuring exercise
wherein it will transition into a holding company and the finance
businesses will be carried out in its subsidiaries, leading to
moderation of the standalone earnings profile of the HoldCo as the
existing lending portfolio runs down.
However, given the significant operational and financial linkages
with the subsidiaries (especially pertaining to financial services),
ICRA Lanka has taken a consolidated rating view of the HoldCo and the
key asset financing subsidiaries. The view is corroborated by the
service level agreements between LOLC and its subsidiaries to upstream
cash flows. LOLC’s standalone earnings would mainly comprise of shared
services fees and dividends from subsidiaries and investment gains.
ICRA has also taken note of the management’s commitment to
de-leverage the HoldCo from the current gearing of 2x as on March 2012
to 1.2x by March 2013 by reducing intra-group exposures and the run-down
of its lending book. Maintaining stable cash flows and a deleveraging of
the HoldCo would remain key sensitivities.
The refinancing risk of the Group is low given the strong franchise,
good relationship with lenders with adequate back-up lines, its liquid
investment portfolio and the key subsidiaries’ access to retail deposits
despite LOLC’s short term asset-liability maturity mismatch remaining
high as short term borrowings have been used to fund long term
investments. Further, the Group is planning to raise long term funds
from overseas lenders which would correct maturity gaps to an extent.
ICRA also expects no major equity investments/ acquisitions by the
HoldCo in the near term and expects the entity to focus on improving its
ALM position going forward.
LOLC Group mainly operates in the area of leasing and hire purchase
of automobiles (with over 80% share in total portfolio) and its largest
customer segment comprises of small and medium business enterprises for
working capital finance. The asset quality of the group’s lending
portfolio has been better than that of its peers though marginally
affected in the current financial year reducing to 1.8% as on March 31,
2012 from 1.6% as on March 31, 2011. |