Final PR
The Pakistan Credit Rating Agency Limited

Rai Umar Zafar

Applicable Criteria

  • Rating Modifiers | Outlook and Rating Watch (Jun 16) [View]
  • Correlation between Long-term and Short-term rating (Jun 16) [View]
  • Methodology | Non-Banking Finance Companies (Jan 17) [View]

Related Research

  • Sector Study | Modaraba & NBFCs (Mar 17) [View]
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PACRA Maintains Entity Ratings of First Fidelity Leasing Modaraba
 Rating Type Entity
 Action Maintain Maintain
 Long Term BBB+ BBB+
 Short Term A2 A2
 Outlook Stable Stable
 Rating Watch - -

The ratings reflect adequate financial profile of FFLM supported by its equity based capital structure. However, resultant benefits have been limited due to stressed asset structure. FFLM's asset base largely comprises non-earning assets (96% at end-Dec16) mainly less liquid investment property - Enplan - and sizeable net non-performing advances. This, while exhibiting weak earning profile of the Modaraba, kept the Modaraba's performance under pressure (loss for the periods, 2HFY17: 4mln; 2HFY16:11mln). Although the management is progressively making efforts to liquidate its exposure in "Enplan". Persistent delays constrained the performance of the Modaraba.

The ratings are dependent on timely liquidation of investment in "Enplan". For which management is progressively making efforts to bring back Modaraba to its core business. The ratings also depend upon management's ability to envisage a business plan for the Modaraba. This strategy, at minimum, should help overcome continuing losses. Any significant decline in its value, resulting in erosion in equity, would have negative implications for the ratings. Meanwhile, any debt acquisition should be considered carefully.
About the Entity
First Fidelity Leasing Modaraba (FFLM) is a perpetual, multipurpose modaraba founded in 1991, engaged in Islamic mode of leasing and term financing under morabaha. Additionally, the Modaraba has developed a portfolio of investment properties, both land and building. Modaraba’s assets also include membership of Pakistan Stock Exchange (PSX) and Pakistan Mercantile Exchange Limited (PMEX). Fidelity Capital Management (Private) Limited (FCML) is the management company of FFLM. FCML is majority owned by Mughals Imperial (Pvt.) Ltd and two individuals (60%), whereas Chief Executive Officer Mr. Wasim-ul-Haq Osmani (18%) of the Modaraba and his associates (22%) owned the rest of the share. FCML has 22% stake in the modaraba (FFLM) while 67% is owned by general public .
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.