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The Pakistan Credit Rating Agency Limited
Press Release

Date
24-Mar-20

Analyst
Muhammad Hassan
muhammad.hassan@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 Downgrades Rating of Pakistan Services Limited | Sukuk | Mar-18, Outlook ''Negative''

Rating Type Debt Instrument
Current
(24-Mar-20)
Previous
(20-Nov-19)
Action Downgrade Maintain
Long Term A AA-
Short Term - -
Outlook Negative Developing
Rating Watch Yes Yes

The ratings reflect Pakistan Services Limited’s (The Company) leading position in the hospitality industry. Ongoing geopolitical scenario, coupled with slowdown in domestic economic activity, impacted the Company's revenues and profitability. The situation has exacerbated with recent outbreak of COVID-19 pandemic and following travel restrictions. This is an industry wide phenomenon and has led to lower occupancies and severe pressure on revenues of players. The profitability of the Company is expected to suffer significantly and, despite better performance in 1HFY20, margins are expected to deteriorate on the back of COVID-19 outbreak. The Company has modest leveraging and a large asset base but higher finance cost and low cashflows have resulted in weak coverages. This trend is expected to continue as cashflows may further deteriorate. The management intends to dispose of some of its properties (real estate assets) to supplement liquidity and meet sizeable upcoming debt repayments. However, material progress is yet to be seen, as buyers are sidelined in current scenario of the industry. Financial support from sponsors remains imperative in the short term.
Ratings are dependent on effective implementation of envisaged strategy to improve cashflows while maintaining modest leveraging and strengthening coverages. Any significant delay in commencement of new projects and/or further deterioration in margins, leading to weak coverages and pressure on liquidity, will have a negative impact on ratings. Meanwhile, maintaining sufficient cushion for debt repayment remains crucial. Support from sponsors is critical.

About the Entity
Pakistan Services Limited was established in 1958 and is quoted on the Pakistan Stock Exchange. It owns and operates Pearl Continental Hotels – the largest hotel chain of the country with 1,526 rooms. Major shareholding lies with Hashoo Group. The Group is one of the leading business conglomerates of Pakistan and has business interests, which span across various sectors both locally and globally.

The Company has a nine member BoD, with one independent member. Mr. Sadruddin Hashwani – founder of the Hashoo Group – is the Chairman of the board. He has experience of over 5 decades of managing different businesses. Mr. Murtaza Hashwani acts as the Chief Executive Officer of the Company.

About the Instrument
Pakistan Services Limited has issued an unlisted, secured, long-term, privately placed Sukuk amounting to PKR 7,000mln (inclusive of green-shoe option of PKR 2,000mln). The bond has a tenor of six years from the date of issue with a grace period of 18 months. The bond is secured with the present and future immovable assets of PC Lahore with 25% margin. Profit rate is payable at 6M-KIBOR + 100 basis points and is to be paid semi-annually in arrears, whereas, principal payment is to be paid in nine semi-annual installments from the expiry of the grace period. The Company issued its first tranche (~PKR 2,333mln) in March 2018, second (~PKR 1,362mln) in July 2018 and the third in January, 2019 (~PKR 3,305mln).

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.