PACRA Maintains Rating of Pakistan Services Limited | Sukuk | Mar-18
|Rating Type||Debt Instrument|
Pakistan Services Limited’s (The Company) has a leading position in the hospitality industry. Hospitality and tourism industry has rebounded now after the severe breakdown of Covid-19. Hotel industry is allowed to operate under specific SOPs, which led the Company to have increased capacity utilization, thus, company has achieved profitability in IHFY22. Occupancy rate and increased average daily room rate has given an up rise trend towards revenues. Company has managed to achieve alignment of its cash flows with current debt repayments and the previous deferment of long-term debts has given an ease to liquidity pressures. Currently, company has strong cashflows to cater the current needs and it is expected to have adequate liquid position in near future as proceeds from disposal of non-core assets of the company materializes. Company has developed a detailed strategic plan towards the future trajectory and it is entering into new franchise agreements which will help in growth and increased margins of the company. Capital structure of the Company reflects leveraging with large asset base and coverages has become strong due to improved cashflows. 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.
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.
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. As per the deferment agreement, If any fixed asset of the Company sells out, the Company would make the repayment of principle on pro-rata basis. The tenor has now been extended to two and a half years. Principal repayment will be started on Sep 2022 with consecutive quarterly installments. The profit repayments is being made on a quarterly basis on the outstanding principal amount at a floating rate of 6MK+100bps from Sep 2021. The Sukuk will be fully matured in Jun 2027.