The Pakistan Credit Rating Agency Limited
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Ahmed Sheikh

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PACRA Assigns Initial Entity Ratings to EFG Hermes Pakistan Limited (Formerly Invest and Finance Securities Limited)

Rating Type Entity
Action Initial
Long Term A-
Short Term A1
Outlook Stable
Rating Watch -

The ratings incorporate EFG Hermes Pakistan Limited (EFGH), (Formerly Invest and Finance Securities Limited) recent association with Cairo based financial sector holding group, EFG Hermes Holdings S.A.E. EFGH plans to capitalize on strong managerial, financial, and operational support from its sponsor. EFGH has well defined risk management and compliance systems to mitigate risks arising from uncertainties inherent in the retail-broking business. To further refine the policies and procedures, EFGH is in process to converge its practices to standards followed by its parent company. The ratings draw comfort from Company’s policy that prohibits proprietary trading which limits the company exposure to market risk. Moreover, the company does not engage in Margin Financing System which minimizes the credit risk exposure. The company has adopted dynamic approach to build the market share and diversify client mix; i) relying on EFG relationship to build foreign client base – intended distinction and ii) attracting local customers through research, strong technology, and customer services. The company plans to launch an online application and revamp its software. EFGH has a centralized research department based in Dubai which covers local and international markets. The domestic team will work along with them.

Going forward, the rating is dependent on the company’s ability to generate sustainable organic revenue and achieve breakeven at operational level. Moreover, building a decent market share in the highly competitive brokerage industry is crucial. Realizing the synergies of international parentage and building up a sustainable foreign business will remain imperative for EFGH.

About the Entity
EFG Hermes Pakistan Limited (EFGH), (Formerly Invest and Finance Securities Limited) started its commercial operations in September 1999 as a private limited company. Effective March, 2008 EFGH became a listed company on the Pakistan Stock Exchange (PSX). The Company is engaged in Financial Brokerage, Corporate Finance and Financial Research. The company operates through two branches Karachi & Lahore with head office in Karachi.

EFG Hermes Frontier Holdings LLC is the major shareholder of EFGH, holding 51% controlling stake, 27% of the holding lies with a group of six individuals whereas, remaining 22% is with general public. EFG Hermes Frontier Holdings LLC is a 100% owned subsidiary of EFG Hermes Holdings S.A.E. EFG Hermes S.A.E has its presence in the Middle East and North Africa (MENA) region and specializes in securities brokerage, asset management, investment banking, private equity, and research. EFG is a leading broker in Arab World. It has equity base of USD ~770 million as of Dec-16 and profit of USD 83 million for CY16. EFG is the first foreign broker to have a local footprint in the country since 2008.

The board of directors (BoD) of EFGH comprises seven Non-Executive experienced professionals. Four members represent EFG Hermes Frontier Holdings LLC and two represent individual shareholders and one member is independent. Mr. Muzzammil Aslam, the CEO, carries over 10 years of experience in the fields of economics, research, business development and financial/capital markets. He is supported by an able and competitive team.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.