(The following statement was released by the rating agency)
Nov 29 - Fitch Ratings Lanka has affirmed Singer Finance (Lanka) PLC's (SFL)
National Long-Term rating at 'BBB+(lka)'. The Outlook is Stable.
SFL's rating reflects Fitch's expectation that support, would be forthcoming
from the parent, Singer (Sri Lanka) PLC (SSLP; 'A(lka)'/Stable), given the
strategic importance of SFL to SSLP. Strong linkages between the two entities
are underlined by the sharing of the Singer brand, SSLP's majority shareholding
of 80.4%, board representation, and the financing by SFLof SSLP's products.
Any changes in SSLP's ability or propensity to extend support, as reflected in a
change to SSLP's rating, a material change in ownership of SFL, or a change in
SFL's strategic importance to SSLP, could trigger a rating action in SFL.
SSLP expects SFL to finance a greater share of its products over the medium-term
after it raised its stake in the subsidiary to 80.4% from 75% by injecting
LKR582.2m of equity into SFL in 2012. Four out of SFL's eight board seats are
held by current SSLP officials and directors, including the chairman of SSLP and
group chief executive officer.
In the past, SFL financed the entirety of SSLP's locally manufactured products,
which amounted to 15% of SFL's advances in FY12 (financial year ending March).
Since April 2012 SFL started financing sales from SSLP's flagship Singer's Mega
stores. SFL currently finances six Singer Mega branches and intends to expand to
12 branches by end-December 2012.
SFL's portfolio expanded 53% in FY12, driven by vehicle financing in the form of
lease and hire purchase (79.1% of SFL's portfolio).The remainder comprised
mainly consumer finance through loans at 18.4% of SFL's portfolio. SFL's
non-performing loans (NPL) of over three months rose to 2.7% at H1FY13 (FYE12:
1.7%) while gross NPL ratio over six months remained below 0.5% during the same
period, which was better than similarly rated peers. NPLs were made up largely
of hire purchases and leases. The asset quality of consumer loans has been
strong. Fitch expects SFL's asset quality to compare favourably with that of the
sector, due to strong credit monitoring and controls.
Lower net interest margins and high operating costs led to a fall in SFL's
profitability, as measured by pre tax returns on assets, to 5.1% in H1FY13 from
5.8% in FY12. Net interest margins tightened as a result of higher funding cost
of 14.7% (FY12: 10.8%). Fitch expects NIM to improve along its expansion on
consumer durable loans, where the yield is higher than vehicle finance.
SFL's deposit base, the primary source of funding SFL (41.3% total assets), grew
14.3% in H1FY13. SSLP channeled LKR759m in borrowing into SFL, which accounted
for 42% of total borrowings at end-H1FY13.
Fitch expects capitalisation to decrease along with its expansion on the
consumer durable portfolio. SFL's equity to total asset ratio and capital
adequacy ratio improved to 24.5% and 26.4% at end-H1FY13 from 16.4% and 17.4%
respectively at FYE12, as a result of SSLP's equity injection in July 2012.
SFL was formed in 2004 to support SSLP's consumer finance business. SSLP is a
leading retailer of consumer durables in Sri Lanka. SFL currently operates
through nine branches and eight service centres.