Commercial Leasing and Finance continues to plunge 

  • Closes at Rs. 32.5 from Rs. 85 a month ago

BY Shenal Fernando 

Commercial Leasing and Finance PLC (CLC) continues to plunge after recording an all-time high of Rs. 84.9 on 5 November and fell to Rs. 32.5 yesterday (6), down Rs. 7.7 (19.15%) from the previous close of Rs. 40.2. 

While LOLC Finance PLC (LOFC) and LOLC Development Finance PLC (NIFL) experienced a 2.5% and a 1.52% growth, respectively, their current market prices represent a significant decrease from their recently achieved all-time highs. 

All three of these LOLC non-banking financial institutions (NBFIs) experienced a surge in their share prices over the past few months after it was announced that LOLC will be establishing LOLC Ceylon Holdings PLC (LOCH) to serve as LOLC’s Non-Banking Financial Institutions’ Sector Holding Company in order to serve as a platform to enable such potential investors to acquire a minority stake in the finance companies it owns. 

Under this internal restructure announced on 12 January 2021, the shares owned by LOLC in Lanka ORIX Finance PLC (LOFC) amounting to 44.79%, shares owned in CLC amounting to 98.92%, and the shares owned in NIFL amounting to 55.55% were to be transferred to LOCH. 

The consequential positive investor sentiments as well as the low liquidity of these shares pushed them to all-time highs, which have been widely accepted as unjustifiable. Many traders and industry players criticised the price increment observed in these stocks and claimed that they cannot be justified on a rational basis. 

Consequently, NIFL reached an all-time high of Rs. 658.6 on 30 June, which represented a 997% gain compared to its price of Rs. 60 on 12 January, before falling sharply and is currently hovering at around Rs. 400.0. 

Similarly, CLC reached an all-time high of Rs. 84.9 on 5 November which represented a gain of over 1,400% compared to Rs. 5.6 as of 12 January. 

LOFC, which was the last of the three stocks to move, reached an all-time of Rs. 37.7 on 16 November increasing by over 550% in comparison to its closing price of Rs. 5.8 on 12 January and is currently trading at Rs. 24.4.

The origin of the recent collapse in the share price of these three NBFIs can be traced to the LOLC announcement on 19 November that it had LOLC completed the transfer of shares of the three NBFIs held by LOLC to LOCH, following which all three shares dropped significantly. Consequently, LOFC contracted by over 30.7%, CLC by 19.1%, and NIFL by 8.9% within the day. 

The behaviour of these three stocks over the past few days has had a significant negative impact on the All Share Price Index (ASPI), which fell by 293.98 points (down 2.35%) to 10,998.32 from the previous day’s close of 11,252.30. CLC was the largest contributor to the fall of the ASPI, contributing 152.9 points, followed by LOFC (25.9 points) and NIFL (24.4 points).

Speaking to The Morning Business, several industry sources claimed that the recent negative price variation observed in the subsidiaries of LOLC’s new NBFIs sector holding company LOCH might be the trigger for a correction in the Colombo Stock Exchange (CSE) in the near term.

They claimed that considering the drastic decrease observed in the prices of CLC, LOFC, and NIFL over the past few weeks, the resulting adverse impact on investor sentiment could lead to a market cool off. 

It was further stated: “The next problem that may arise is, in case people have brought CLC or LOFC via margin, margin calls may lead to a selloff of fundamentally good stocks. Because if somebody bought CLC at Rs. 60 a few days back and now the share price is around Rs. 33. They might hold CLC in the hope that it might go up later and they might sell off some other shares in their portfolio. This could have a ripple effect on the market, CLC selling will happen on one side and on the other side we might see fundamentally strong stocks coming down as well due to a sell off.”

Several traders have claimed on social media over the past few days that the fall in prices particularly with regard to CLC and LOFC was due to the fact that LOCH and other related parties were reducing their respective stakes in the three in order to comply with CSE minimum public float requirement. 

According to the 2Q FY2022 reports of the three companies, as of 30 September 2021, the public float of CLC stood at 0.45%, while the public float of LOFC and NIFL stood at 5.4% and 0.11%, respectively. Therefore, the public shareholding of all three companies are significantly below the CSE-mandated minimum public float of 20%. 

Similar sentiments were raised by the industry sources who spoke to us, they pointed  to the large volumes traded over past few days which they alleged clearly shows that LOCH or a related party is selling as the volumes observed cannot be supplied by the retail investors considering the low public float in all three companies. 

However, The Morning Business was unable to verify the veracity of these claims and all requests for a comment from LOLC and other related parties were refused. Furthermore, as of 6 December, no disclosure has been made to the CSE in support of such claims.