Prime Grameen Micro Finance Ltd, a former Ceylinco Group company bought over by real estate firm Prime Lands earlier this year, has been assigned "B-" long term, with stable outlook, and "NP" short term financial institution ratings by RAM Ratings Lanka. These ratings being attributed to the company's "small size, weak asset quality, performance and liquidity, and short track record after the change of ownership and restructuring."
Additionally, RAM attributed the company's historically weak performance as being "affected by hefty costs (particularly group expenses) and related-party loans on which interest had not been charged, resulting in the company being mired in losses for the last few years. Since the change in ownership in June 2011, however, the company has resumed lending to the high-yielding micro-financing segment. It also faces lower interest costs after the conversion of its debts and deposits into non-voting shares as part of the restructuring. The management intends to expand its portfolio by roughly 80% to around Rs. 3.0 billion by end-fiscal 2012."
However, RAM also stated that, while it was "cautious about this target as Prime Grameen still lacks a sufficient track record after its restructuring and change in ownership," it also predicted that the company would "return to the black in [Financial Year Ending 31 March 2013]."
At the same time, RAM also revealed that the company's "funding had been affected by declining deposits following negative publicity associated with its previous owners, as well as retained losses that had wiped out its shareholders' funds. With the restructuring of its balance sheet and capital injection by the new owner, the company has settled all its matured deposits while its funding position has strengthened somewhat, albeit still weaker than its peers'. As at end-July 2011, deposits accounted for 55.75% of its total funding, again at a lower level than its peers'. Prime Grameen's liquid-asset ratio stood at 3.45% as at end-July 2011, lower than its peers' and also the 10% regulatory requirement. Following the recent infusion in August, the ratio is estimated to have improved to around 17% but is expected to weaken in line with the company's anticipated loan expansion and continuing losses in the immediate term."
Also noted by RAM, in 2000, the company "pioneered the Grameen micro-financing model in Sri Lanka, which involves the disbursement of small-ticket loans to self-employed individuals at the grassroots levels of the economy." And, following its insolvency, along with the rest of the Ceylinco Group, it obtained a licence to become a Registered Finance Company in 2010 and, as such, resumed its lending operations. RAM also indicated that the company's assets were equal to just 1.01% of the industry's asset base as of end-March 2011.
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