ICRA Lanka Limited, subsidiary of ICRA Limited, a group company of Moody’s Investors Service, has assigned the issuer rating of [SL]B (Pronounced SL B) with a stable outlook to Nations Lanka Finance PLC.The rating considers NLF’s moderate scale, modest asset quality, constrained funding profile and weak profitability indicators. NLF’s core capital as in June 2018 stood at Rs 705 million, below the regulatory requirement of Rs 1 billion for Licenced Finance Companies (LFCs).
ICRA Lanka takes note of the rights issue of Rs 600 million in September 2018, which uplifted the company’s capitalization to an extent; however, the capital profile is expected to remain subdued considering the new CBSL norms for capital adequacy computation. Further, NLF would require sizeable external capital infusion (about Rs 1.4-1.5 billion over the period FY2019-FY2021, with adequate buffer), in relation to its net worth, as internal generation is expected to remain modest.
ICRA Lanka takes note of the participation of some key shareholders (constituting about 60% of the shareholding in Jun-18) in the recent rights issues and subordinated debenture issuance of the company. However, support from them going forward, considering NLF’ future capital requirements, remains to be seen.