Press Release

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

Karachi, June 11, 2021: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Saudi Pak Industrial and Agricultural Investment Company Limited (SAPICO) 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 10, 2020.

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

In the backdrop of challenging economic conditions and uncertainty posed by pandemic, disbursements were made with a highly cautious and conservative strategy. The company intends to keep following conservative strategy and tap top to mid-tier clients while focusing on Public Sector Development Programme projects. Overall asset quality remained largely intact in FY20; with a recovery of around one-third of non-performing portfolio, infection levels are expected to decrease by end-FY21.

Growth in investment portfolio was mainly manifested in Pakistan Investment Bonds (PIBs). The investment strategy entailed buying primarily floating rate PIBs which constituted 60% of overall portfolio. Fixed rate PIBs having long duration poses relatively high interest rate risk, hence, the management intends to rationalize its PIBs portfolio. The listed equity portfolio primarily comprised highly liquid dividend yielding stocks. With return on TFCs pegged with market rates, interest rate risk in the investment is considered manageable. Overall profitability indicators improved during the outgoing year primarily on the back of higher income from investment portfolio, increase in rental income and higher gain on securities. The Company has maintained sizable provisions on the equity portfolio, which can lead to considerable gains upon reversal in case stock market continues to perform well.

As a secondary market borrower, the company is primarily dependent on funding from other financial institutions. Given long-term investment portfolio funded by short-term repo borrowings, significant asset liability maturity mismatch is present on the books. Overall liquidity profile weakened with decrease in liquid assets (adjusted for repo) as a proportion of total borrowings & deposits. Meanwhile, liquidity risk is considered manageable as repo borrowings are secured against highly liquid government securities. Continuous monitoring is done to deal with any mismatch on an ongoing basis to manage overall associated risk. Capital adequacy Ratio decreased due to increase in Risk Weighted Assets primarily in line with higher market risk. Additionally, Tier-II eligible capital decreased due to revaluation deficit on PIBs portfolio. However, CAR is still considered sound.

For further information on this rating announcement, please contact Ms. Tayyaba Ijaz at 042-35723411-13 (Ext. 8004) and/or the undersigned at 021-35311861-66 (Ext. 306) or email at info@vis.com.pk


Javed Callea
Advisor


VIS Entity Rating Criteria: Government Supported Entities (July 2020);
http://www.vis.com.pk/kc-meth.aspx

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