PACRA Maintains Entity Ratings of Pak-Libya Holding Company (Pvt.) Limited

Development Financial institutions (DFIs) largely operate on turf common to commercial banks. Limited participation in development projects, low funding base and high competition are the challenges. Joint Venture Financial Institutions are DFIs jointly established by two sovereigns; ratings are mainly characterized by sovereign ownership, adequate governance and relatively conservative risk appetite.
The ratings of Pak-Libya reflect sustained performance of the company, since last many years. Over the last one decade, JVFIs at large have been relying more on the non-core income attributable to limited outreach in the market. In last few quarters, the company suffered sizable loss on its investment book attributable to fix positions in PIBs. Currently, the government securities mix is redesigned with sizable quantum in PIBs (Floaters) and differentiated tenor for PIBs (Fixed); mix though improved but market risk prevails. Funding base majorly comprises borrowings from money market while minuscule portion lies in CoIs. During 9MCY19, with significant surge in interest expense along with loss on securities, the Company booked pre-provisioning operating loss. However, in latest quarter the company managed to close in profits. Going forward, given current economic scenario vigilant monitoring of existing loan book is required while keeping operating costs in check. Last year, an SPV named Kamoke Powergen (Pvt.) Limited was incorporated, to apply for power generation license from NEPRA – KEL largest non-performing exposure. However, management has provided for the major portion and is eying to dispose off the asset and settling the outstanding exposure on break even. Company’s sovereign parentage has not translated fully in meeting its regulatory capital requirement deficiency as of date. During 3QCY19, MOF injected PKR 200mln whilst PKR 300mln is allocated and PKR 500mln is budgeted in CY20. However, LAFICO has injected PKR 1bln as advance for right issue subscription, which is received by PLHC via three credit advice accumulating the total amount. Extension granted till Sep 30th, 2019 whilst further extension is under process.
The ratings have a "negative outlook", signifying the need to comply with regulatory minimum capital requirement (shortfall of PKR 2.0bln as at end-Sep'19). Consistent efforts by the management to stabilize revenue stream and add further diversity to operations would remain key area to ensure sustainable profitability. Meanwhile, sustaining asset quality would help maintain the ratings. Current advancement on sell-off KEL is important for the ratings.

About the Entity
Pak Libya Holding Company (Pvt.) Limited (Pak Libya) was established as a joint stock company in October 1978. The Company is equally owned by the Government of Islamic Republic of Pakistan, represented through State Bank of Pakistan (SBP), and the Government of Libya, represented through Libyan Foreign Investment Company (LAFICO). The overall control vests with six-member board of directors including MD/CEO, DMD and four non-executive directors having equal representation from both governments. Company’s MD/CEO, Mr. Khurram Hussain carries financial sector experience of almost 30 years.