Analyst
Bazah Tul Qamar
bazahtul.qamar@pacra.com
+92-42-35869504
www.pacra.com
Applicable Criteria
Related Research
PACRA Maintains Entity Ratings of Modaraba Al-Mali
Rating Type | Entity | |
Current (15-Apr-20 ) |
Previous (27-Sep-19 ) |
|
Action | Maintain | Maintain |
Long Term | BBB+ | BBB+ |
Short Term | A2 | A2 |
Outlook | Stable | Stable |
Rating Watch | Yes | Yes |
Since many years, Modarba is striving for a sustainable business model, which is not yet eventuated. The relative operating environment has emerged out significantly. MAM is lagging far behiand 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 reflect low risk financial profile of Modaraba Al Mali owing to its equity based capital structure . Rating is reflective of entity's non exposure towards market risk because of no debt/equity investment. 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 underpinning its revenue stream through renting out the available extra space from its office premises. The management plan to maintain largely equity-based capital structure is important for the ratings; however, borrowing from the management company/sponsor bank would be an option available to the Modaraba. Modarba Management Company has been vigorously looking for potential buyers to take over the Modarba's affairs. A progressing deal in this regard, is likely to be matured by the end of FY20.
The ratings are dependent on the management's ability to devise and implement an expedient business plan and carry out 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.