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The Pakistan Credit Rating Agency Limited
Press Release

Date
18-May-18

Analyst
Ayesha Qasim
ayesha.qasim@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Maintains Entity Ratings of GuarantCo Limited

Rating Type Entity
Current
(18-May-18 )
Previous
(29-Sep-17 )
Action Maintain Maintain
Long Term AAA AAA
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

GuarantCo Limited, an international Joint Venture development financial institution, is the local currency guarantee arm of the Private Infrastructure Development Group (PIDG). It is directly and indirectly owned by five highly rated sovereigns. Continuous sponsors support is evident from recent injections by Australian government’s Department of Foreign Affairs (DFAT) and callable capital from the UK via PIDG. GuarantCo mainly operates in low income, below investment grade countries. Its objective is to facilitate flow of debt capital to projects having bearing on infrastructure and a positive long term impact by offering credit guarantees.
GuarantCo is cautiously building its guarantee portfolio with adequate emphasis on diversification: geographical, entity and sector. More than 60% of the company’s portfolio is tilted to Africa, although GuarantCo is focusing to gain more exposure in Asia supported by their recently opened office in Singapore. There is almost 10% impairment in the quality of guarantee assets; improved from the last year. However, given the small size, this might be reflective of otherwise detailed and robust credit evaluation and monitoring framework.
The Company maintains good provision coverage. During CY17, a significant decrease in investment income was witnessed; though the overall return on investment is positive yet it is diminished on YoY basis. Recoveries from stressed portfolio supported bottom-line; enabling the company to post profit as opposed to continuous losses in prior years. Meanwhile, the sponsors gradually injected fresh funds to keep the company equipped with robust capitalization. A healthy treasury investment portfolio mainly comprising fixed income corporate bonds and US Treasury funded by its equity. Thus liquidity remained adequate along with sizable income stream. GuarantCo Management Company, a fully owned subsidiary of Cardano Development, is the fund manager responsible for GuarantCo's commercial operations. The contract has been assigned for relatively a longer period which is expected to help the management, to pursue a well-conceived strategy to achieve profitability in the near term. Nevertheless, the management's success in achieving its business objectives while capitalizing on its identified niche – infrastructure development remains to be seen.
GuarantCo's ratings are dependent on its robust ownership structure, well supported by implicit indeed demonstrated commitment by the sponsors. The Company's ability to achieve desired growth in its guarantee portfolio is important to pull off from bottom-line losses. Meanwhile, close monitoring of asset quality remains critical.

About the Entity
GuarantCo Limited was established in 2006. The company has executed forty seven projects with exposure in fifteen countries to date. The ownership of GuarantCo lies with five governments – four of which (United Kingdom, Sweden, Switzerland, and Australia) own through Private Infrastructure Development Group (PIDG), and the Netherlands through FMO (Dutch Development Bank). GuarantCo's seven member BoD comprises all non-executive directors who are qualified professionals with emerging and frontier market experience. The board reports to a PIDG-wide audit, risk, credit, investment and operational health and safety committee who are ultimately responsible to the PIDG board. In January 2017, Mr. Lasitha Perera replaced Mr. Chris Vermont as the new CEO. Mr. Perera was previously the Chief Investment Officer of the Company and has been associated with GuarantCo since 2009. Ms. Yukiko Omura has replaced outgoing chairman Mr. Andy Bainbridge as the chairperson of the board since 1st January 2018. Ms. Yukiko Omura carries three decades of experience in multilateral development agencies and leading investment banks.

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.