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ICRA affirms Orient Finance rating, revises outlook to Stable

12 Jul 2021

  • Support from Parent company Janashakthi credited for revision
ICRA Lanka Ltd. has reaffirmed the Issuer rating of Orient Finance PLC (OFP) at [SL]BB. The outlook on the rating was revised to Stable from Negative. The revision in the outlook factors in the improvement in OFP’s asset quality and profitability indicators in FY2021. OFP’s gross NPA ratio reduced to 10.18% in March 2021 vis-à-vis 18.78% in March 2020, mainly due to a NPA write-off of Rs. 1,422 million. ICRA Lanka also takes note of the improved slippages ratio which stood at 1.79% in March 2021, compared to 9.43% in March 2020, which also contributed to the reduction in the GNPA ratio. The rating factors in the net profit of Rs. 193 million in FY2021 vis-à-vis the net loss of Rs. 437 million in FY2020, mainly on account of lower credit costs; credit provisioning/ATA had reduced to 1.29% during FY2021 vis-à-vis 6.15% in FY2020. The rating continues to take comfort from the support derived from the parent company, Janashakthi PLC (JPLC, rated [SL]BBB-/Negative by ICRA Lanka). JPLC had infused over Rs. 1 billion to OFP by way of a rights issue and conversion of preference shares in FY2020. With the capital support from JPLC and incremental internal generation, OFP’s Tier 1 and total capital ratios stood at 9.71% and 11.13% respectively in March 2021; same is above the regulatory limits of 6.50% and 10.50%. The rating also takes note of the impact of the CBSL debt moratorium and the likely effect on loan collections and the overall liquidity profile of the company over the next 6 months. Going forward, it is crucial that OFP keeps control on incremental loan slippages and continues to maintain asset quality at a comfortable level. Further, the company’s ability to meet the on-going regulatory capital requirements is also crucial from a rating point of view and will be monitored by ICRA Lanka. The Stable outlook reflects the improvement in the asset quality and profitability indicators of the entity. The outlook may be revised to Positive in case of further substantial improvement in the capital structure, asset quality, and earnings profile. The outlook may be revised to Negative if the asset quality and financial risk profile of OFP shows deterioration, and/or if there is less than expected capital support from the parent entity. OFP is 93% owned by Janashakthi PLC (JPLC, rated [SL]BBB-/Negative by ICRA Lanka), the holding company of the Janashakthi group. Janashakthi Group has significant interests in the financial services sector through its controlling interests in Janashakthi Insurance PLC (life insurance), First Capital PLC (primary dealership and investment banking), and Orient Finance PLC (non-banking financial services).   JPLC has demonstrated a track record of providing capital support for OFP, in order to meet regulatory capital requirements. During FY2020, the Janashakthi group infused over Rs. 1 billion to OFP through a rights issue and a conversion of preference shares.  Further, the Janashakthi group provides strategic managerial support for the NBFI, especially in terms of talent acquisition.

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