GuarantCo provides $11m facility to Softlogic Finance for long term senior debt
GuarantCo has provided a LKR 1,400m ($11m equivalent) guarantee facility to support rupee denominated Debentures issued by Softlogic Finance Ltd (SF).
SF finances small commercial vehicle owner-operators and other transport linked businesses, most of whom would otherwise not have access to formal financing from banks. As at December 2013, SF had total assets under management of LKR 15,790m (USD 120m equivalent), making it the 12th largest Non Banking Finance Company (NBFC) in Sri Lanka. SF expects to be amongst the top 5 NBFCs in Sri Lanka by March 2018, with its assets under management rising to LKR 58,000m, driven by strong demand for its loan/ lease products.
Raising long term funding to meet such growth is challenging - SF needs to continually raise long term funding in line with the rising demand for its commercial vehicle and other loans. However, due to the limitations of the Sri Lankan finance market, it is able to access only short term, relatively expensive funding, which puts pressure on its profitability and also leads to Asset / Liability mismatches.
In order to access Sri Lanka’s debt capital markets, the best source for long term finance for it, SF required GuarantCo’s assistance. The facility of LKR 1.4bn provided to SF enabled it to raise affordable long term funds for the benefit of its customers, through pioneering credit enhanced Debentures with a tenor of 5 years. The Debenture issuance, which closed for subscription on 21st August 2014, is the first credit enhanced AAA rated issuance in Sri Lanka, and will help in the development of Sri Lanka’s debt capital markets by increasing the acceptability of credit enhanced instruments. The issue received subscriptions for Rs. 4.37bn and was 3.12 times oversubscribed.
Press coverage of the Debenture issuance can be viewed here and here.
In order to provide local market participants with more information regarding the deal and other Debt Market initiatives, a half day seminar titled "Financing Sri Lanka’s Development" –an Investor Forum on Debt Capital Alternatives for the SME Sector, was organized by Softlogic Finance PLC, in collaboration with GuarantCo in December 2013. The programme was designed to educate the attendees on availability of alternatives as well as providing an impetus to the local debt markets, to assist its participants to pursue such alternatives through regulatory frameworks and to substantially increase the development of the SME sector of Sri Lanka. The Keynote address at the event was delivered by the Governor of the Central Bank of Sri Lanka, Mr. Ajith Nivard Cabraal. The Debentures were finally subscribed to by several prestigious Sri Lankan financial institutions, including licensed commercial banks and mutual funds, in addition to pension funds and other institutional and high net worth investors.
Press coverage of the seminar can be viewed here and here.
SF is part of the diversified Softlogic Group, which includes insurance, healthcare, software and tourism companies. Ashok Pathirage, founder and chairman of the Softlogic Group, speaking about the GuarantCo supported Debenture issuance said “We are very happy to have structured this landmark transaction that has received tremendous investor interest. We will continue to explore alternative means of funding that will be utilized to develop the very important SME sector of the country".