The Pakistan Credit Rating Agency Limited
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Masooma Zahid

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PACRA Maintains Entity Rating of EFG Hermes Pakistan Limited

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

The entity rating of EFG Hermes Pakistan Limited demonstrates its emerging position in the country’s brokerage industry. Strong sponsor support, good governance framework and company’s ability to manage risks are the key traits. Company’s market share is growing due to strengthening of its customer base. The eight member board of the company includes one independent director. The company has a well-designed organizational structure, with the senior management reporting to the respective heads at group level. Ongoing efforts have been put for full integration of the group’s policies at company level.

The research department has foreign alliance and is centralized in U.A.E. As a group policy, the company does not engage in proprietary trading which keeps the market risk low. The company could not reach a break-even point and reported a loss of PKR 6 million for 1QCY18. The company has availed external financing for its margin book. The equity base of PKR 239 million gives modest capacity to absorb the financial risk. Enhancement in retail and foreign sales would further add diversity and support to the brokerage revenues.

Improvement in profitability, continuous monitoring of risk related parameters and retention of key human resource will bode well for the company. The rating requires the company to enhance the diversity and volumes of revenue for establishing a competitive position in the brokerage industry.

About the Entity
EFG Hermes Pakistan Limited (Formerly Invest & Finance Securities Ltd.) is a financial services company, licensed under Securities Brokers (Licensing and Operations) Regulations, 2016 as a securities broker and provides securities research and brokerage services to institutional and individual clients. Company also provides investment banking advisory.

Company is 51% owned by EFG Hermes Frontier Holdings LLC which is wholly owned subsidiary of EFG Hermes Holding S.A.E. EFG Hermes has presence in the Middle East and North Africa (MENA) region, specialized in asset management, securities broking, investment banking, private equity and research. EFG Hermes is the first foreign investment bank and securities broker to have physical presence in Pakistan. Company operates from its head office based in Karachi, Pakistan.

Company has eight board members including CEO, one director is independent. Including chairman, four board members are key management personnel of EFG group. During nine months ended March 2018, the board met three times to review the overall performance of the company.

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.