Following fortune

LOLC plans to invest Rs. 3 billion in hotels

Lanka Orix Leasing Company (LOLC) Chief Executive Officer Kapila Jayawardena talks to Daily FT of robust growth and following the pulse of the economy to diversify rapidly and make maximum gains from current stability

By Uditha Jayasinghe

Q: Can you summarise LOLC’s strengths?

A: LOLC has been growing rapidly long before the war was over. Our profit before tax grew by an impressive 127% compared with the previous year and in the first quarter of this which ended in June the profit before tax was 39%. We have been aggressively pursuing expansion and are now among the largest top ten companies in terms of market capitalisation. LOLC has 25 direct subsidiaries and over 2,500 employees and 150,000 active customers. We have calculated that Rs. 4 billion worth of transactions take place each month and this clearly indicates strong growth and confidence in our company.

Q: How is the company positioned at present?

A: Right now we are the largest non-banking financial service provider in the country. The company also has the largest market share in leasing- around 20% and the lowest non-performing loan ratio in the industry. This is around 4.6% in LOLC, which is significantly lower than the 7% found elsewhere. LOLC also has the largest share of leasing for agri implements and actively engages with the farming community to provide them with finance needs.

Q: What are your views of post-war development?

A: Our aim is to take full advantage of the unique opportunity offered to our country. Never before in recent history has the twin strengths of political stability and economic prosperity combined to give companies the chance to forge ahead with their expansion plans and we are very bullish on the chances out there.

Taking this unprecedented stability into consideration LOLC is making fresh investments in new sectors but we are careful to keep our pulse on the development heartbeat of the country and adjust ourselves accordingly. We are focused on moving with the Government into areas that have potential for explosive growth – such as the leisure and construction sector through our investments in Confifi Hotels and Sierra.

We also have plans to open an insurance company in the first quarter of next year and have already obtained the required license in this regard. We have also bought a stake in Browns and expect to consolidate our relationship with them as well as with five key sectors within the company, including leasing, tourism, construction and insurance.

Q: Are you not wary of diversifying too fast?

A: Absolutely not. Our core business remains leasing and we are not going to move away from that. LOLC will continue to consolidate on its financial position and growth plans. Our financial performance has remained consistent throughout the years and we are confidently forging ahead.

Q: Tell us more about your planned insurance company?

A: It is business on a plate. Our internal volumes alone will automatically make us the sixth largest general insurance company in Sri Lanka. Even though the general insurance market in Sri Lanka is rather saturated, especially in the urban areas, there is plenty of room for long term insurance such as life insurance.

We are targeting more penetration in the rural areas and are focusing mostly on micro and small and medium enterprises as our clients. Most of them already have a working relationship with us and with our large network of branches we can reach out to them more effectively. With more awareness and increased revenue they will be keen to do business with us.

Q: LOLC clearly pays a lot of attention to the rural population. How have they responded to the post-war environment?      

A: LOLC has an extensive branch network that has been growing rapidly. In 2008 we had only 30 branches and recently we opened our 100th branch in Hanwella. By the end of 2011 we hope to increase this number to 150 and hit the 200 landmark in 2012.

We firmly believe that the future is in the rural areas and that is where most of our focus is going to be. There is a higher level of resurgence and optimism in the rural areas and we want to tap into that. We provide a multitude of services through our branches and have even set up a unique linking system with the Sri Lanka postal service to operate on their premises.

Q: How is growth in the north and east?

A: The growth has been tremendous. We have five branches in the north and east including Jaffna and Vavuniya. It is clear that they were starved of growth and our financial services have received a massive response from them. Compared to the other regions they have topped the regional branches.

In one year the north has posted 8% of the total value of regional business conducted by us hotly followed by the east. Outside of these two provinces the central and southern regions have posted strong business with Anuradhapura and Galle respectively becoming the central focal points for growth generation.

Q: What do you think is the reason for this?

A:  I believe that the end of the war gave an incredible boost to agriculture and north and east along with the central provinces are most affected by this change. As for the south I think it is mostly to do with tourism. LOLC plans to invest Rs.3 billion and we are positive that an upgrade in the type of arrivals is imminent. Many of the hotels are going upmarket with refurbishments and we are following the same trend. We have been in the leisure sector for about one and a half years now in anticipation of this change of fortunes with investments in Eden Hotel, Riverina, Club Palm Garden and Tropical Villas.

Q: What steps do you think the Government should take to support this growth?

A: I personally believe that we do not need the Government. I think that depending on the Government is an old fashioned sentiment that is no longer valid. We have peace, political stability and a strong economy – that is enough. The rest is for us to do.

Having said that, I think certain moves by the Government like reducing vehicle taxes are very positive. It enabled the common man to have more access to a vehicle and stimulated growth for all linked industries. I think they need to follow this lead by reducing taxes on other items as well even household items and make Sri Lanka a shopping hub – much like Singapore and Bangkok. Such a move can be constructively linked with tourism and would give more earnings to the government.

Q; Even with Sri Lanka experiencing such growth why is Foreign Direct Investment (FDI) slow to trickle in?

A: FDI will take time to come. The local businesses will grow and show the international investors of the potential that exists in Sri Lanka. With time the ratings on Sri Lanka will rise and more confidence will be built. Once that happens they will be more comfortable in investing in Sri Lanka.