The Pakistan Credit Rating Agency Limited

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PACRA pioneered in developing the rating culture in Pakistan. Ever since its inception in 1994, PACRA has always prided itself on independence, transparency and integrity. These values lie at the core of all the products that PACRA offers. Rating is about leveraging the concept of "relativity": to create a distinction among the rated universe based on a blend of objective criteria and refined judgement. The rating not only assigns a notational value to the rated universe, which makes calssification and categorization among them possible, but also accompanies a detailed rationale which provides a deep insight into each rating. In an increasingly complex and dynamic socio-economic environment, PACRA's ratigns signify expert opinions to help professionals and investors make informed decisons. Over the years, PACRA's products have expanded from plain-vanilla entity rating to structured finance rating and from asset manager quality rating to fund stability rating. Each product has a distinct audience and conveys a specific meaning, drawing upon the methodology designed especially for it. A brief introduction to each product follows.

Entity Rating Instrument Rating

Entity rating signifies the level of investment risk and the capacity and/or willingness of an entity to meet its debt obligations. The risk level is indicated by the long and short term ratings. Entity rating is a blanket rating, which covers all the financial obligations of the entity; it is a view on the entity's ability to repay all of its finanancial obligations without any distinction among them. Since it does not analyse the individual characteristics of the borrowings based on their specific structure, and terms and conditions, therefore it does not comment on each borrowing; instead entity rating gives a generalized opinion on all borrowings of the rated entity.

Instrument rating covers all non-equity instruments including TFCs (long and short term), Sukuks, and bonds. By indicating the risk profile of the instrument, the assigned rating helps the issuer in deciding the terms of the instrument while guiding the potential investors in investment decisions. Unlike entity rating, instrument rating is a specific opinion given on a specific instrument. This entails analysis of the instrument structure and the collaterals that it contains. Based on this analysis, intrument rating is adjusted with reference to the rating of the issuer. Wherever the issuer is unrated, a shadow rating is incorporated into the process.

Structured Finance Rating Insurer Financial Strength Rating

PACRA has the expertise to rate debt instruments with features of structured finance. Such instruments may have various credit enhancement features designed for reducing either the investment risk, the default risk or both. Structured Finance ratings focus on evaluating specific cash flows identified for meeting the repayment obligations, and also the security arrangements. PACRA's ratings are contingent on examining all the underlying documentation that gives effect to the proposed features of the instrument.

The insurer financial strength (IFS) rating represents an opinion of an issuerís financial strength and business continuity from a policy holder's prospective. IFS rating captures the relative ability of the insurer to meet policy holders' obligations. However, the rating provides no guarantee against default but offers a well researched opinion as to the likelihood of the issuer to fail to fulfil its obligations towards policy holders. IFS rating is applicable to insurance obligations insofar as these are in compliance with the company's stated policies and procedures.

Project Grading Fund Stability Rating

The Project Grading (PG) is an opinion on a specific project being managed by any real estate entity. PG differentiates projects on the basis of their individual attributes; the concept is that projects of the same developer could have different grading; Although DG and PG have a high probablity of linear relationship, this could break to merit a different rating for the project depending upon its unique charateristics.

This is an opinion on the prospective relative stability in a fundís return. The rating provides an objective measure as to the main areas of risk to which the income and money-market funds are exposed. The risk factors are: Credit Risk, Market Risk, Liquidity Risk, Returns Volatility, and Quality of Management and Support Systems.

Star Ranking / Fund Performance Ranking Capital Protection Rating

The Star Ranking measures performance of funds in a risk and return combination, and then ranks the funds accordingly on the basis of their performance. The ranking is a quantitative measure and funds are rated within their respective categories. A fundís particular ranking is computed with reference to its category and consequently, rankings are comparable only in the same category.

Capital Protection Rating (CPR) is another rating class for mutual funds. CPR captures the relative extent to which principal invested in the fund is secure from loss at the time of maturity. CPR is not a view on the fund performance; it is concerned with the fund performance only insofar as it is imperative to meet the redemption of the principal amount at maturity.

Asset Manager Rating Security Agency Grading

Asset Manager (AM) Rating provides investors with an independent opinion on the quality and expertise deployed by an asset management company and potential vulnerability to operational and investment management failures. AM Rating differs fundamentally from credit ratings, which refer to the ability to meet debt obligations. The focus of AM rating is to gauge the fund management capability of the asset manager, as reflected from its operating platform, human resource base and the infrastructure that it has erected. AM rating gives a view on whether the asset manager meets or exceeds the overall investment management best practices, the benchmarks and standards in all criteria under review.

Security Agency Grading ascertains the ďability of a company to provide protection servicesĒ. The eventual grading establishes the relative standing of the SA among peers. PACRA evaluates various qualitative and quantitative factors to determine the quality of protection services provided by a particular SA. These are 1) Profile, Ownership & Governance Framework, 2) Management Quality, 3) Infrastructure Adequacy, 4) Security Personnel Profile & Performance, and 5) Financial Sustainability. PACRA follows a top-down approach to analyze these factors both on a standalone basis and in unison to form a holistic opinion. Each of the factors depicted above encompass a number of sub-factors necessary for formulating the grading opinion.