Description

Revision of financial covenants for Five-Star Business Finance Limited debt securities, increasing permissible DPD thresholds.

Summary

Five-Star Business Finance Limited has revised the financial covenants in Schedule IX (Sr.4) of its debt securities terms. The revision increases the permissible threshold for gross loans with days past due (DPD) greater than 90 days as a percentage of Assets Under Management (AUM), as well as the net NPA ratio threshold.

Key Points

  • Gross Loans with DPD > 90 days as % of AUM threshold increased from 2.50% to 3.25%
  • Net NPA ratio (Gross Loans with DPD > 90 days less ECL as % of AUM) threshold increased from 1.50% to 2.25%
  • Changes apply to Sr.4 of Schedule IX Financial Covenant terms
  • Represents a relaxation of asset quality maintenance requirements

Regulatory Changes

Existing Terms:

  • Gross Loans with DPD > 90 days as % of AUM < 2.50%
  • Gross Loans with DPD > 90 days less ECL as % of AUM < 1.50%

Revised Terms:

  • Gross Loans with DPD > 90 days as % of AUM < 3.25%
  • Gross Loans with DPD > 90 days less ECL as % of AUM < 2.25%

Compliance Requirements

  • Debenture holders and investors should note the revised covenant levels
  • The company must maintain the revised covenant thresholds going forward
  • Monitoring of asset quality metrics against new thresholds required

Important Dates

  • Circular Date: January 19, 2026
  • Effective Date: Not explicitly stated, presumed immediate

Impact Assessment

The covenant relaxation provides Five-Star Business Finance Limited with more breathing room on asset quality metrics, potentially indicating near-term pressure on loan book quality. For debt investors, this represents increased credit risk tolerance and may warrant reassessment of holdings. The 75 basis point increase in gross NPA threshold and similar increase in net NPA threshold suggests the company may be experiencing elevated delinquencies or anticipates such pressures.

Impact Justification

Material covenant relaxation indicating potential asset quality pressure, relevant for debt investors and credit risk assessment