Karachi, June 24, 2023 (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 28, 2022.
The 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 Institution under the terms of a joint venture agreement. KSA has outstanding international ratings of ‘A’ and ‘A+’ from global credit rating agencies. The ratings take note of growth momentum witnessed in the loan book post covid-19 repercussions with management’s aim to build a diversified portfolio of Tier-I and Tier-II clients, largely pertaining to project financing.
The gross infection increased on a timeline owing to classification of one client along with implementation of IFRS-9. The ratings remain constrained on account of relative size of legacy npl portfolio vis-à-vis peers. Nevertheless, the ratings factor in additional provisioning buffers kept under IFRS-9 resulting in negative net infection and over 100% provisioning coverage of npls. Maintenance of asset quality will remain important for ratings as rising inflation and benchmark rates may affect the debt repayment capacity of Saudi Pak's clientele, leading to potential credit risk headwinds and npl accretion.
Given investment portfolio majorly comprises government securities the credit risk is on the lower side. Moreover, the elevated market risk owing to high interest rate environment prevalent is mitigated to some extent as floater rate PIBs account for 73% of Saudi Pak’s total PIB portfolio. Overall, liquidity profile is comfortable with sufficient liquid asset coverage to deposits and borrowings; the same is in sync with the median of peers. The ratings reflect spread compression, dip in profitability indicators and reduction in equity base on account of initial adoption of IFRS-9 and comprehensive loss booked on investments. On the other hand, Capital Adequacy Ratio remains sound and exhibits considerable room for growth. Going forward, pressure on ratings will remain given recovery of profitability indicators and appropriate repositioning of investment portfolio is not achieved in the medium term.
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
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/
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