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The Pakistan Credit Rating Agency Limited
Press Release

Date
27-Jun-19

Analyst
Sehar Fatima
sehar.fatima@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 Pak-Libya Holding Company (Pvt.) Limited

Rating Type Entity
Current
(27-Jun-19 )
Previous
(27-Dec-18 )
Action Maintain Maintain
Long Term AA- AA-
Short Term A1+ A1+
Outlook Negative Negative
Rating Watch - -

Development Financial institutions (DFIs) largely operate on turf common to commercial banks. Limited depth in participation towards development of long gestation projects, low funding base, and high competition become their key challenges. Joint Venture Financial Institutions are DFIs jointly established by the two sovereigns with primary objective of identifying and nurturing multiple development initiatives. Their ratings are mainly characterized by sovereign ownership, adequate standards of governance, and relatively conservative risk appetite.
The ratings of Pak Libya reflects sustained performance of the company since last many years. Benefiting from the increasing credit off take in the country in last few years, lending side of Pak Libya picked up pace along with sustaining the asset quality. Treasury operations continue to strengthen the financial position of the company. Investment in government securities increased; the company suffered sizable loss on its investment book; management has shrinked its PIB portfolio to minimize future losses. The company needs to beef up and elaborate its investment policy. Funding base majorly comprises borrowings from money market. During CY18, with significant surge in cost structure - interest and provisioning expense - company booked pre-provisioning operating loss. Going forward, given current economic scenario vigilant monitoring of existing loan book is required while keeping operating costs in check. The management continues to cautiously expand its existing loan book through corporate finance activities and further penetrating in SME segments.
Last year, a Special Purpose Vehicle named Kamoke Powergen (Pvt.) Limited (KPL) was incorporated, to apply for power generation license from NEPRA so as to increase viability of KEL – Pak Libya's largest non-performing exposure – a strategic investment on the books. However, the exposure was completely provided for. Although the management is trying to pursue it, owing to non-viability of RFO plants in a current energy industry dynamics, the sale of plant seems challenging. Company’s sovereign parentage have not translated fully in meeting its regulatory capital requirement deficiency as of date. Lately, Ministry of Finance has injected PKR 200mln and given confirmation of remaining PKR 800mln to be injected by CY19. The approval for further extension in compliance with capital requirement has been extended by State Bank of Pakistan till June 30th, 2019.
The ratings have a "negative outlook", signifying the need to comply with regulatory minimum capital requirement (shortfall of PKR 1.6bln as at end-Dec'18). Consistent efforts by the management to stabilize revenue stream and add further diversity to operations would remain critical. Meanwhile, sustaining asset quality would help maintain the ratings. Timely sell-off of 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), implying strong sovereign support. The overall control of the company vests with six-member board of directors including the 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 more than 30 years. All the team members carry vast experience in related field.

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.