VIS Reaffirms Ratings of Saudi Pak Industrial and Agricultural Investment Company Limited

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Karachi, June 03, 2019 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Saudi Pak Industrial and Agricultural Investment Company Limited (Saudi Pak) at ‘AA+/A-1+’ (Double A Plus/A-One Plus). The medium to long-term rating of ‘AA+’ denotes high credit quality, with strong protection factors. Moreover, risk factors are modest but may vary slightly with possible changes in the economy. The short-term rating of ‘A-1+’ denotes highest certainty of timely payment, liquidity factors are outstanding and safety is just below risk free short-term obligations of Government of Pakistan. Outlook on the assigned rating is ‘Stable’. The previous rating action was announced on June 12, 2018.

Ratings assigned to Saudi Pak take into account its strong shareholders’ profile, with two sovereigns, Government of Pakistan and Kingdom of Saudi Arabia (KSA), having an equal stake in the company under the terms of a joint venture agreement. KSA has outstanding ratings of ‘A-/A-2’ from an international credit rating agency.

As consistent with the company’s moderate risk appetite, disbursements are mainly targeted towards mid-tier companies. Moreover, in the backdrop of prevalent economic conditions, the company has adopted a conservative approach in making disbursements against the set targets. Fresh disbursements were steered mainly towards financial institutions, food, poultry, advisory, textile, sugar and electronics segments; all advances outstanding pertained to the private sector.

Concentration in the lending portfolio, though improved, has remained high as the ten largest exposures represented more than two-fifths of performing advances. However, high concentration in lending portfolio is a function of small size of the portfolio itself. Weakening in performance indicators is evident by increase in infection ratios, concentration in advances, withering spreads and re-measurement loss in the listed equities.

Anticipating interest rate volatility, the company disposed-off its entire government securities to lock-in the available gains and also to avoid mark to market losses. Net investment in TFCs increased by the end-FY18. Among listed equities, investment pertains to dividend yielding and highly liquid stocks with major exposure in power, banking, cement and fertilizer segments. The overall profitability indicators relatively remained suppressed during FY18 as compared to preceding year on account of divestment in government securities during 1QFY18 in line with anticipation of upsurge in market interest rates.

The same contributed to decline in yield on earning assets during FY18 as compared to preceding year. On the other hand, cost of funding underwent a notable increase on account of higher interest charge on debt facilities obtained in line with general increase in cost of borrowing coupled with change in the borrowing mix. Resultantly, spreads were recorded lower on a timeline basis. Despite severe market volatility, the company managed to maintain its profitability targets.

As a secondary market borrower, the company is primarily dependent on funding from other financial institutions. On account of sale of long-term investments, asset liability mismatch was largely rectified. Overall liquidity profile of the institution declined in line with reduction in liquid assets as a result of sale of government securities. Tier-1 equity augmented on a timeline basis on the back of profit retention. Net NPLs (including TFCs) as a portion of Tier-1 capital, were reported higher during the outgoing year as a result of increased incidence in NPLs.

For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873