The unit’s CSX-listed bonds will lock in funds to scale up, raising its presence in a highly competitive environment
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Tough competition in the local market has got micro financier LOLC (Cambodia) Plc thinking on its feet, devising a strategy to expand its footprint for long-term growth.
“Corporate bond is one of funding strategy to diversify our sources of funding on top of existing sources of fund like unsecured bank loan, unsecured foreign borrowings, and deposit,” LOLC Chief Executive Officer, Sok Voeun tells Capital Cambodia.
Out of 80 MFIs operating in Cambodia, LOLC is one of seven MFIs with a licence to conduct deposit-taking business. It is the second unit in Cambodia to list its corporate bonds in CSX after Hattha Kaksekar Ltd (HKL) which issued 1.2 million bonds on CSX last December. HKL raised $30 million for its business expansion.
LOLC believes that in the long run, fundraising from the stock exchange would result in lower interest rates, which would make its products attractive to clients.
“We believe there is enough liquidity in CSX and can raise funds for long-term funding. It ensures our future growth while improving our capital base,” he says.
Over the years, several MFIs in Cambodia have been acquired by foreign investors, meaning that competitors can access secure funding from Korea and Japan.
He cites South Korea-based Woori Bank Co Ltd which bought up local lender VisionFund (Cambodia) Ltd, Taiwan-headquartered Shanghai Commercial and Savings Bank Ltd’s 80 percent acquisition of Angkor Mikroheranhvatho (Kampuchea) Co, and Bank of Ayudhya Public Co Ltd’s purchase of HKL, as examples.
But LOLC is steadfast in its decision to operate as a standalone and continue as an MDI.
The Cambodian unit, which is 96.97 percent-owned by LOLC International Pvt Ltd, a wholly-owned subsidiary of Sri Lankan LOLC Holdings Plc, has its core business anchored in individual loans, contributing 70 percent to its revenue. It is mostly credit for agriculture, production, house improvement, electricity, and water bills.
Small and medium enterprise loans of $10,000 to $100,000 represent 19 percent of its total loan portfolio and the remaining 11 percent account for group loans.
For its financial year ended December 31, 2018 (FY18), its total assets stood at $750 million. LOLC hopes to reach $1 billion in asset value by FY20. Loan portfolio rose 50 percent to $487 million in FY18 from $323 million a year ago.
Active borrowing customers amounted to 245,000. Deposits grew 155 percent to $230 million from $90.3 million in fiscal year 2017.
Return on equity is 25 percent to 28 percent. In order to stay ahead of the competition, the unit needs to have a clear strategy and know its customers’ needs.
“We are aware of the threats but we also notice an opportunity. Our strategy for the future is to operate as a standalone, remain as an MDI, and continue pushing the market. We have 77 branches nationwide. We are (considered) big.
“The strategy will ensure a healthy growth for our loans. (Since we have been around for some time), we know the market and risks, and expect growth to continue,” Voeun adds.
He believes that the successful fundraising activity would drive its expansion based on the high demand already evidenced among investors.
“But although there is high investor interest for subscription, the fundraising sum is (still) limited to $20 million,” he says.
LOLC received principle approval for bond listing eligibility review from CSX on March 21 and expects to list the bonds by the end of April this year.
Its bonds are unique as investors can participate in fixed-coupon bonds and FX-indexed bonds, the latter typically designed to provide investors an embedded tool to hedge future exchange risks.
“It is the first time this type of bond is being introduced in the local market,” Voeun says.
The bonds with a three-year tenure and coupon rate, to be announced soon, support the government’s aim of promoting the riel where the interest payment would be settled in local currency.
“We have submitted our documents including the coupon rate and notification to investors to CSX, and Securities and Exchange Commission of Cambodia. We hope the paperwork would be completed soon.
“We feel that the listing shows that LOLC is in full compliance of standards, and we practice good governance and financial transparency, and abide by tax declaration laws,” he adds.
