The Pakistan Credit Rating Agency Limited
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Ayesha Qasim

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PACRA Upgrades Entity Ratings of Ismail Iqbal Securities (Pvt.) Limited

Rating Type Entity
(29-Aug-18 )
(23-Jun-17 )
Action Upgrade Maintain
Long Term A- BBB-
Short Term A2 A3
Outlook Stable Stable
Rating Watch - -

The entity ratings takes into account the sponsor’s firm commitment to maintain the company’s equity in case of erosion and/or to meet any capital call arising from underwriting commitments through injection of funds in a timely manner. The ratings take into account the steps taken by the management to fortify risk management framework through establishment of board level committees and segregating risk and compliance function. The corporate governance framework is adequate and the company plans to induct an independent director on the board in 2HCY18.

The company’s revenue stream comprises brokerage income, underwriting business, and net gain from the proprietary trading. The trading in proprietary book creates perception of conflict of interest and there could be high variation in earnings linked to the volatility of the stock market. This risk is mitigated to a certain extent by structured investment policy of the company and limits on proprietary book in relation to the equity (upto 25% of equity) of the company. The equity base of the company has been growing due to accumulation of profits, which provides cushion against losses. The company has adequate capitalization levels with net capital balance of PKR204mln at end June 18.

The rating is dependent on sustainability of profitability through core activities of brokerage and underwriting. The majority of revenue emanates from HNWIs but the management has devised a suitable plan to increase its focus towards local institutional clients. Upholding strong internal controls and diligent monitoring of risks is critical. Erosion in equity base due to losses that is not timely replenished as committed by the sponsor will result in downgrade. Adherence to agreed parameters regarding investment policy and underwriting commitments is crucial.

About the Entity
Ismail Iqbal Securities (Pvt.) Limited, with commercial operations starting in Aug'04, operates through one branch, in Karachi. Its main activities include equity brokerage and underwriting. Being a private limited company, it is owned by three individuals, wherein the majority shareholding (65%) lies with the CEO - Mr. Ahfaz Mustafa - and remaining stake is equally held by his siblings. The family represents Ismail Iqbal group, engaged in education, logistics, and packaging businesses. The company's auditors are Baker Tilly Mehmood Idress Qamar.

The company’s board comprises two experienced individuals including the CEO and his elder brother Mr. Azhar Iqbal (non-executive director). Executive decision making rests with CEO while Mr. Azhar Iqbal provides governance oversight.

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.