The Pakistan Credit Rating Agency Limited
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Timnat Thomas

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PACRA Maintains Rating of Pakistan Services Limited | Sukuk | Mar-18

Rating Type Debt Instrument
(24-Mar-21 )
(24-Mar-20 )
Action Maintain Downgrade
Long Term A A
Short Term - -
Outlook Negative Negative
Rating Watch Yes Yes

Pakistan Services Limited’s (The Company) has a leading position in the hospitality industry. Hospitality and tourism industry was affected due to outbreak of Covid-19 with associated lockdown and travel restrictions around the globe. Pandemic situation is still underway as third wave is around reflecting uncertainty in the industry. Overall hotels and hospitality industry dynamics started improvement, restrictions were softened and economic activity resumed. Hotel industry is allowed to operate under specific SOPs, which led the Company to achieve limited profitability in 2QFY21 and came back to operating profit level at the half year close. Challenges persists like low occupancy rate and reduction in average daily room rate. As a response to address the challenges, the Company managed to achieve alignment of its cash flows and payables by deferring long term debt which will eventually ease out liquidity pressure for near future. Furthermore, management decision to dispose of non-core assets will supplement the future liquidity position. Capital structure of the Company reflects leveraging with large asset base but on the other hand coverages are weak due to lower cashflows and higher debt servicing cost. Alignment of long-term loan is alleviating this pressure. Financial support from sponsors remains imperative.
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 coupled with low occupancy rate leading to weak coverages and pressure on liquidity, will have a negative impact on ratings. Meanwhile, maintaining sufficient cushion for debt repayment remains crucial. Outlook on the entity is negative while rating watch maintained. In this respect, removal of material uncertainty related to going concern as documented by the external auditors is important.

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. The Company has a nine-member BoD, with three independent members. 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 Sukuk initially had a tenor of six years from the date of issue with a grace period of 18 months. Under the Regulator’s Relief Package amid COVID-19, the Company has availed deferment of the outstanding principal amount of PKR 6.6bln. The tenor has now been extended to two and a half years. Principal repayment will start on Sep 2022 with consecutive quarterly installments. The profit repayments will be made on a quarterly basis on the outstanding principal amount at a floating rate of 6M-KIBOR plus 100bps from Sep 2021. The Sukuk will be fully matured in Jun 2027.

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