Janashakthi to raise Rs.2.0bn via unlisted debentures

• Company looking to refinance debt as Dunamis merger increased gearing 

Janashakthi PLC has announced plans to raise Rs.2.0 billion via an unlisted corporate debenture as the company seeks to refinance its debt.

The company accumulated debt, due to additional borrowing taken to acquire Dunamis Capital PLC along with the entity’s debt, which later became part of the group debt after the two companies amalgamated last December. 

Janashakthi PLC is the investment holding company of First Capital Holdings, Janashakthi Insurance PLC and the non-bank lender, Orient Finance PLC. 

The company’s gearing level deteriorated after it acquired a 41.1 percent stake in Dunamis Capital PLC in September 2018 and the full amalgamation in December 2019. 
Dunamis Capital brought in the investment bank, First Capital Holdings and the real estate developer, Kelsey Development PLC directly under 
Janashakthi PLC. 

The Rs.1.0 billion debenture held under Dunamis Capital is now held by Janashakthi PLC post-amalgamation. 

The company this week said its earlier plans to reduce borrowings and thereby bring down the finance cost and rationalisation of its investment portfolio were hindered due to the coronavirus disruptions but has now resumed to make progress in those areas. 

Further, the Janashakthi management expects the current low interest rate atmosphere to stay at least till the next financial year, as the company seeks some respite via lower borrowing costs on its financial performance. 

“With the resumption of normal restructuring of borrowings in the coming months the downward trend in interest rates is positively impacting the group as a whole and we expect the government would continue with its current monetary policy stance at least for the forthcoming financial year,” said Janashakthi PLC CEO Ramesh Schaffter said. A rating report on the company released in March by ICRA Lanka estimated the post-amalgamation debt levels of the company to increase by Rs.3.3 billion with a fair value-based gearing at about 2.78 times in September 2019, up from 1.33 percent prior to the amalgamation vis-a-vis 1.70 times in March 2019. 

ICRA Lanka has a BBB- rating on Janashakthi PLC, with a ‘Negative’ outlook.  

“The Negative outlook factors in the steady weakening in JPLC’s financial risk profile, which was further impacted post acquisition of Dunamis Capital PLC. The outlook may be revised to ‘Stable’ in case of a sizeable improvement in the earnings and gearing profile,” the rating agency stated. 

The company’s profits for the three months ended in June received a boost from First Capital Holdings PLC, which reported earnings of Rs.1.5 billion for the quarter, compared to Rs.582 million in the comparable period, last year, as it realised part of its government securities booking a massive trading gain. 

Therefore, Janashakthi PLC’s earnings rose to Rs.820.7 million for the April-June quarter, compared to a loss of Rs.81.3 million in the comparable period, last year. 

The company had incomes of Rs.3.9 billion for the quarter, up from Rs.3.4 billion in the same period, last year. The company makes its operating income mainly from dividend incomes from its subsidiary companies and interest income.  

The company appears to be trying to roll over part of its debt, which comes due for retirement this year, as the interim results showed a debenture maturing in 2020.

The company will issue 20 million debentures in two types at Rs.100 each—one maturing in two years and the other maturing in three years, at rates of 13.25 percent and 13.50 percent, respectively, payable semi-annually. 

Besides refinancing debt, the company might also divest non-core assets/investment property and stake sale in subsidiaries to improve its coverage and leverage indicators. 

“However, it is crucial for the company to significantly reduce its debt levels in the near term and the same would be a key rating sensitivity,” ICRA Lanka added.