Press Release

VIS Assigns preliminary rating to Additional Tier-I Instrument of U Microfinance Bank Limited

Karachi, February 03, 2022: VIS Credit Rating Company Limited (VIS) has assigned preliminary rating of ‘A-’ (Single A Minus) to U Microfinance Bank Limited’s (UMBL) proposed Tier-I instrument. The medium to long-term rating of ‘A-’ signifies good credit quality with strong protection factors. Moreover, risk factors may vary with possible changes in the economy. Outlook on the assigned rating is ‘Stable’. Rating will be finalized upon review of signed legal documents.

UMBL is in the process of issuing a listed, perpetual, unsecured, subordinated, non-cumulative and contingent convertible debt instruments amounting up to Rs. 1.0b (inclusive of Green Shoe Option of Rs. 250). The issue proceeds will contribute towards the bank’s additional Tier-1 capital and will be utilized towards enhancement of the bank’s business operations while remaining compliant with the CAR prescribed by the SBP under its Basel III framework. UMBL’s Tier-1 instrument will rank ahead of claims of ordinary shareholders but below the bank's senior creditors, depositors. The bank cannot make dividend payments to equity shareholders in the event of non-payment of mark-up on TFCs.

VIS has assigned entity ratings of A+/A-1 (Single A Plus/A-One) to UMBL indicating good credit quality with adequate protection factors. The ratings incorporate UMBL’s strong sponsor, Pakistan Telecommunication Company Limited (PTCL) (assigned an entity rating of AAA/A-1+ (Triple A/A-One Plus) by VIS Credit Rating Company Ltd.) which is co-owned by the Government of Pakistan and Etisalat International Pakistan (LLC) (Etisalat) (rated AA- by an international credit rating company). Management control of PTCL rests with Etisalat, a state-owned Telecom Corporation of UAE. The implicit support from the sponsor was witnessed in recent times; the same has added further depth to capitalization indicators of the bank. Moreover, the ratings reflect growth in business volumes, sound liquidity profile and enhanced profitability metrics.

The assigned rating portrays the relative risk of the Tier-I instrument wherein issuer has full discretion on coupon payments, interest servicing from only profits for the year and conversion feature in the event of pre-specified trigger events, lock-in clause and point of non-viability in terms of regulatory requirements. While the regulatory framework may not consider a missed coupon payment as a default; the credit rating methodology employed by VIS would treat such missed payments as an event of default. In normal course of business, VIS believes that chances of non-performance risk are remote given healthy capital buffers which will be enhanced further post issuance of ADT-1 instrument.

For further information on this rating announcement, please contact the undersigned at 021-35311861-70 or Ms. Maham Qasim at 042-35723411-13.



Faryal Ahmad Faheem
Deputy CEO

Applicable rating criterion: Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf

Rating The Issue (July 2020)
https://docs.vis.com.pk/docs/Notchingtheissue202007.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 2022 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .