Analyst
Usama Liaquat
usama.liaquat@pacra.com
+92-42-35869504
www.pacra.com
Applicable Criteria
Related Research
PACRA Maintains Entity Ratings of Modaraba Al-Mali
Rating Type | Entity | |
Current (27-Sep-19 ) |
Previous (02-Apr-19 ) |
|
Action | Maintain | Downgrade |
Long Term | BBB+ | BBB+ |
Short Term | A2 | A2 |
Outlook | Stable | Stable |
Rating Watch | Yes | - |
Modaraba over the years has been trying to build a sustainable business model. With different attempts, the outcome is not yet materialized. The incumbent CEO has been working on a business plan, which with the auspices of the board, will be implemented. The development of this plan has been delayed. The relative operating environment has grown significantly. MAM has lagged in the relative peer universe having similar rating characteristics. The ratings draw comfort basically from the association of the Modaraba with Bankislami, via management Company (Bank Islami Modaraba Investment Limited). The ratings of Modaraba is reflective of its equity-based capital structure. Its financing book mainly comprises of Ijarah and Musharaka. Although the asset quality is fully maintained, as NPL’s are fully provided (Loan Loss Provisions / Impaired Lending: 100%). The Modaraba is raising its income stream through renting out the available extra space from its office premises. The management would maintain largely equity-based capital structure; however, borrowing from the management company/sponsor bank would be an option available to the Modaraba.
The ratings are dependent on the management's ability to formulate a viable business plan and execute the business strategy to establish the modaraba on its footing. Maintaining healthy asset quality and its equity-based capital structure is important. The entity has been put on rating watch, given the parent of the management company intends to off-load its stake.
About
the Entity
Modaraba Al-Mali (MAM), incorporated in 1987, is a small-sized and perpetual multi-purpose Modaraba listed on Pakistan Stock Exchange, with its head office in Karachi. BankIslami Modaraba Investments Limited (BIML) – wholly owned subsidiary of BankIslami Pakistan Limited (BIPL) owns 13% equity of MAM, whereas other certificates are distributed among NBFCs, joint stock companies and individuals. BoD comprises eight members. Seven nominees are of BIPL and among them, there is one independent director. Mr Sadiq Sheikh- CEO of Modaraba Al Mali has four decades of diversified experience. He is supported by a qualified management team