First Capital Holdings’ ICRA long, short-term ratings reaffirmed

ICRA Lanka Limited, a subsidiary of ICRA Limited, a group company of Moody’s Investors Service, has reaffirmed the issuer rating of [SL]A- with stable outlook for First Capital Holdings PLC (FCH). 
ICRA Lanka has also reaffirmed the issue rating of [SL]A- with stable outlook for the Rs.500 million senior unsecured redeemable debenture programme of the company. ICRA Lanka has also reaffirmed the [SL]A2+ rating to the Rs.1,000 million commercial paper programme of FCH. 
ICRA Lanka has taken a consolidated view of FCH and its subsidiaries due to their common brand and senior management team and other operational and financial linkages between the group entities. The ratings factor in FCH’s status as the holding company of First Capital Treasuries PLC (FCT), a standalone primary dealer in Sri Lanka with issuer rating of [SL]A- with stable outlook. 
The ratings take note of the potential improvement in the business and financial performances of the other group entities, which are engaged in corporate debt structuring, corporate finance, asset management, stock broking, extending margin trading facilities and trustee services. ICRA Lanka however notes that FCH’s performance is largely dependent on performance of FCT, as the contribution from the other entities presently is quite modest. FCT accounted for 74 percent of the total consolidated asset base of FCH as on March 31, 2016. 
Thus, FCH’s performance is expected to be susceptible to the risks inherent in the primary dealer business. The rating also factors the FCH group’s established clientele of over 2500, which is expected to support the business growth of the group entities. 
FCH, being a holding company, derives its income from the dividends from the group entities and income from its investments, which includes interest income and profit from investments. Total standalone income for FY2016 was adversely affected (Rs.350 million total income in FY2016 vis-à-vis Rs.590 million in FY2015) due to non availability of dividend income (Rs.212 million in FY2015), which is linked to performance of the principal subsidiary, FCT. The expected improvement in the performance of FCT in FY2017 vis-à-vis FY2016 is likely to support the overall performance of FCH.  The company’s funding profile is characterised largely by short-term funding (commercial papers), which accounted for close to 85 percent of the total standalone debt as on March 31, 2016, while the remaining was in the form of long-term debentures. FCH’s asset profile (standalone) largely consists of short-term loan funding to its group entities. The company’s standalone gearing has increased to about 5.3 times as on March 31, 2016 vis-à-vis 3.4 times as on March 31, 2015; however the FCH group’s access to the sanctioned bank lines and its liquid assets provides comfort from a liquidity perspective.  
First Capital Limited (FCL), which is 99.9 percent held by FCH, is involved in corporate debt structuring and corporate finance advisory services, reported a total fee income of Rs.111 million in FY2016 (Rs.127 million in FY2015). FCL is the step-down holding company for the other entities in the FCH group including, First Capital Asset Management Limited (FCAML), a licensed investment manager and licensed managing company for unit trusts by the Securities and Exchange Commission, First Capital Markets Limited (FCML), which is involved in providing margin trading facilities and dealing and broking of listed debt, First Capital Equities (Pvt.) Limited (FCEL), which is engaged in stockbroking activities and the newly formed First Capital Trustee Services (Pvt.) Limited. 
FCAML reported a fee income of Rs.56 million on a total AUM of about Rs.5.4 billion in FY2016 as compared with Rs.29 million on a total AUM of about Rs.4.2 billion in FY2015. FCML reported a total income of Rs.59 million (Rs.59 million in FY2015) and FCEL reported a total income of Rs.56 million (Rs.86 million in FY2015) in FY2016. 
FCAML, FCML and FCEL together accounted for 11 percent (7 percent in FY2015) of the FCH consolidated income and 60 percent (2 percent in FY2015) of the consolidated profit before tax for FY2016 as profits from FCT was quite muted due to the unfavourable interest rate regime during the period. ICRA Lanka notes the improvement in the business volumes in the above-mentioned entities over the recent past; however, the group performance is expected to be driven by the primary 
dealership, FCT.