ICRA revises rating outlook of Asia Asset Finance

ICRA Lanka Ltd. has reaffirmed the issuer rating of Asia Asset Finance PLC (AAF or the company) at (SL)BBB+.

ICRA Lanka has also reaffirmed the issue rating of (SL)A-(SO) assigned for the Rs. 1,000 million asset backed secured debenture programme of AAF.

The letters SO in parenthesis suffixed to a rating symbol stand for Structured Obligations. The SO rating is specific to the rated issue, its terms, and its structure. The SO rating does not represent ICRA Lanka’s opinion on the general credit quality of the issuer concerned. The outlook on the long-term ratings is revised to Stable from Negative.

The ratings factor in the operational, financial, and managerial support which AAF derives from being a 73% owned subsidiary company of Muthoot Finance Ltd. (MFL or the parent) rated by ICRA Ltd. of India at (ICRA)AA+ (Stable).

Further, ICRA Lanka noted that, while the capital adequacy ratios remain adequate, the buffer over minimum capital requirement (set by the Central Bank of Sri Lanka [CBSL]) remains modest. 

AAF reported tangible net worth (adjusted for revaluation reserves and deferred tax gains) of Rs. 1,991 million and reported net worth of Rs. 2,189 million, respectively as of December 2020, which was close to the minimum regulatory core capital requirement of Rs. 2 billion by January 2021.

Further, the company is required to have a minimum core capital requirement of Rs. 2.5 billion by January 2022, which is likely to be met through internal generation and capital infusion by the parent company. 

The ratings take into account MFL’s consent to provide capital support in the future as well to meet the growth and regulatory requirement.

The outlook revision to “Stable” from “Negative” reflects the improvement of the parent entity’s rating and the additional support extended by the parent. The outlook revision also factors the increase in exposure to asset backed lending, including gold loans. 

The outlook may be revised to “Negative” in case of further deterioration in AAF’s asset quality indicators, weakening profitability and also, in case of lower than expected support from MFL. The outlook may be revised to “Positive” in case of improvement in capitalisation and asset quality indicators of the company. 

AAF is a registered finance company setup in 1970 as a “Finance and Land Sales Company”. In 2004, Asia Capital PLC (ACP) acquired AAF. In August 2014, MFL acquired about 30% of the company and in December 2014, MFL increased its stake up to 51%. 

During FY2020, MFL has further increased its stake to about 73% via a rights issue. AAF offers gold loans, small and medium enterprise (SME) loans, vehicle finance (two-wheelers, three-wheelers, cars, and vans etc.), loan against property, fixed deposits, and other personal credit facilities.

During FY2020, AAF reported a profit after tax (PAT) of Rs. 70 million on an asset base of Rs. 15.16 billion, as compared with a PAT of Rs. 101 million on a total asset base of Rs. 13.9 billion in the previous financial year. 

During 9M ended December 2020, AAF reported a PAT of Rs. 18 million on an asset base of Rs. 15.32 billion, as compared to a PAT of Rs. 91, during the 9M ended December 2019.