Press Release

VIS Reaffirms Bank Loan Rating (BLR) of Avari Hotels (Pvt.) Limited

Karachi, August 08, 2024: VIS Credit Rating Company Limited (VIS) reaffirms medium to long term BLR rating of Avari Hotels (Pvt.) Limited (‘’AHPL’’ or ‘’the Company’’) at 'AA (blr)' (Double A). Medium to long-term rating of 'AA' indicates high credit quality; Protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. Outlook on the assigned rating remains Stable. Previous rating action was announced on June 16, 2023.

AHPL is engaged in the hospitality sector for more than five decades. AHPL owns and manages two five-star hotel properties in Pakistan, namely ‘Avari Towers Karachi’ (AT) and ‘Avari Lahore’ (AL). Avari Towers Karachi is a 225-room property, which began operations in 1985. Avari Lahore commenced operations in 1978 and has a room count of 186. In order to cater to the mid-tier clientele, the Company also manages boutique hotels under the brand name Avari Xpress (AX) in Islamabad, Multan, Faisalabad, Lahore and Avari Boutique Multan and Gilgit; the properties for these hotels have been acquired under lease contracts. AX has 525 rooms at end-June’24.

This facility was acquired from two banks, Meezan Bank Limited (Rs. 2b) and Industrial & Commercial Bank of China Limited (Rs. 2.3b) in October 2019. Remaining tenor of each facility is 2 years and 9 months years. Proceeds from the facility were partly utilized for expanding the properties, while the remaining portion was used for retiring other debts on the books. The assigned rating draws comfort from the payment structure of the facility. Although this loan is present on the books of AHL, it is being serviced by one of AHL’s tenant, Unilever Pakistan Limited, one of the largest FMCG operating in Pakistan for a number of decades. Unilever’s parent company, Unilever PLC, carries an international long-term rating of ‘A+’ by Standard & Poor’s. Unilever has been a tenant of AHL for more than 35 years. The facility, agreed upon by AHL and Unilever, is structured as an advance discounting of the lease rental agreement for nine years. The security structure is tripartite [lenders, AHL and Unilever] with Unilever giving an undertaking to pay principal and markup payment against rent payable in lieu of advance rent they would have ordinarily paid. Hence, the current rating of the facility depends upon financial strength of Unilever and the lease agreement between AHL and Unilever; any changes in the financial profile of the lessee would have an impact on rating. The facility is additionally secured by a charge on assets of AHL and personal guarantee of sponsors.

The company's financial risk profile improved in FY23, driven primarily by increased room charges as occupancy rates normalized after the post-COVID resurgence in FY22. Despite this, gross and net margins contracted due to inflationary pressures and higher finance costs. The coverage profile remained stable, aided by a reduced current portion of long-term debt. Capitalization metrics showed improvement in FY23, attributed to timely debt repayments and an increase in the equity base due to profit retention during the year.

Going forward, occupancy rates are expected to be supported by sporting events like the champion’s trophy and PSL as well as increased propensity of local travel among Pakistanis due to expensive international travel. This trend is expected to stabilize the topline and profitability profile. Furthermore, a major religious congregation held in July 2024 will also support occupancy rates and contribute to the topline in FY25. In terms of capitalization, ongoing renovations at Avari Lahore are not expected to exert additional pressure on capitalization metrics, according to management.

For further information on this ratings announcement, please contact at 021-35311861-64 or email at info@vis.com.pk.



Applicable Rating Criteria:
Industrial Corporates
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf
VIS Rating Criteria – Bank Loan Rating
https://docs.vis.com.pk/Methodologies%202024/BLR112018.pdf

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .