Multi Finance on Rating Watch with developing outlook

LRA has placed the BB3/NP ratings of The Multi Finance Company Ltd on Rating Watch, with a developing outlook.

The Rating Watch reflects the potential material changes in the Company's financial and business profiles arising from the proposed capital enhancement and strategic investment by Ceylinco Shriram Securities Holdings Ltd (CSSHL).

The proposed investment entails a Rs. 70 million initial capital investment by CSSHL, as consideration for a 70% stake in Multi Finance. Following this, controlling interest and the reins of management of Multi Finance will be turned over to CSSHL.

The capital enhancement had been initiated to satisfy the Central Bank of Sri Lanka's minimum core capital requirement of Rs. 200 million for all registered finance companies. The Rs. 70 million represents the initial investment needed to satisfy the first target of Rs. 100 million. CSSHL has also agreed to invest the additional capital requirements of Multi Finance to meet statutory provisions, as and when required.

While the capital enhancement reflects positively on Multi Finance, the new management's risk appetite is still unclear vis-a-vis business and financial strategies. LRA expects to resolve the Rating Watch on Multi Finance upon reassessment of the Company's new management and future business strategies.

LRA's Rating Watch highlights a possible change in an entity's existing financial institution ("FI") rating. It focuses on identifiable events such as mergers, acquisitions, regulatory changes and operational developments that place a rated FI under special surveillance by LRA.