The Pakistan Credit Rating Agency Limited
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Madiha Sohail

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PACRA Maintains Entity Ratings of EFG Hermes Pakistan Limited

Rating Type Entity
(24-Dec-20 )
(27-Dec-19 )
Action Maintain Maintain
Long Term A- A-
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

The ratings reflect EFG Hermes Pakistan Limited's ("EFG Hermes" or "The Company") association with an international financial services group “EFG Hermes” having access to emerging and frontier markets. The Company has carved its footprints in thirteen countries across four continents, spanning 35 years of growth. The assigned ratings incorporate company’s adequate market share, well built governance structure and satisfactory operating profitability. The Company maintains a high leveraged capital structure whereby, the parent company has provided unconditional and irrevocable financial guarantee to the bank. Following the recent boom in traded volumes of stock exchange, the core revenue of the Company remained buoyant and the Company maintained its market share to ~3%. The Company does not maintain proprietary investments hence less exposed to market risk. Sizable liquid assets and support from parent provide comfort to the ratings. Further, appointment of ‘A’ category auditors and establishment of two board level committees augurs well for insightful monitoring. The Net Capital Balance of the company clocked in at ~PKR 370mln with an equity base of ~PKR 138mln as at end Sep'20 whereas, the net profit after tax and net equity of parent Company stood at ~EGP 426mln and ~EGP 13.6bln. The topline of the EFG Hermes Pakistan lacks diversification in revenue stream and concentrated to the equity brokerage income which clocked in at ~PKR 128mln at end Sep’20 (SPLY: ~PKR 70mln). The Company earned profit amounting to ~PKR 0.49mln during 3QCY20 (3QFY19: ~PKR 56.6mln loss).
The ratings are dependent on the management's ability to retain its market share and enhance the volumes and diversity of revenue to improve its competitive position in the brokerage industry. Retention of key personnel and sustainability of profitability will remain imperative from ratings perspective.

About the Entity
EFG Hermes Pakistan Limited, a public listed company, is 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. It is also engaged in investment banking activities. The Company is 51% owned by EFG Hermes Frontier Holdings LLC, which is a wholly owned subsidiary of EFG Hermes Holding S.A.E. EFG Hermes has presence in the Middle East and North Africa (MENA) region and specializes in asset management, securities brokering, investment banking, private equity and research. EFG Hermes is the first foreign investment bank and securities broker to have physical presence in Pakistan. The Company operates from its head office based in Karachi, Pakistan. Mr. Saad Iqbal is CEO of the Company. The Company has thirteen board members, including the CEO, of which four are independent. The board meets on quarterly basis to review the business performance.

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.