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The Pakistan Credit Rating Agency Limited

Date
12-Jul-2017
Analysts
Rai Umar Zafar
rai.umar@pacra.com

Mohsin Naseer
mohsin.naseer@pacra.com

+92-42-35869504
www.pacra.com
Applicable Criteria

  • Methodology | Fund Stability Rating (Jun 17) [View]

Related Research

  • Sector Study | Mutual Funds (Oct 16) [View]
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PACRA Maintains Stability Rating of NAFA Income Opportunity Fund
 Rating Type Stability Rating
Current
(12-Jul-2017)
Previous
(09-Dec-2016)
 Action Maintain Maintain
 Long Term A(f) A(f)
 Short Term - -
 Outlook Stable Stable
 Rating Watch - -

The investment objective of the fund is to earn a reasonable rate of return while ensuring capital preservation for its unit holders by investing in money market and debt securities.

The rating reflects the fund's mandate to build a sizeable exposure to debt investments though of good quality. As at end-May17, the total exposure stands at 4% from financial and corporate sectors (TFC's & Sukuk). Majority of the assets are deployed in cash balances and placements with good commercial banks (58%). Exposure of bank deposits is with 'A-' & above rated banks. The exposure with Government securities is merely 3%, remaining assets portion is debt securities (4.2%) and deployed in margin trading system (1%) which due to its self-liquidating nature, possesses less risk over a short tenure. The unit holding pattern of the fund is fairly concentrated with top 10 investors representing 48% of the fund's net assets as at May-17.

Going forward, the fund intends to increase its allocation to government securities (25%). The remaining assets will be invested in debt instruments and bank placements with a minimum rating of 'A' and above rated banks. Material changes in the fund's asset allocation strategy, which could negatively impact the fund's credit quality and exposure to interest rate risk, remain critical for the rating.
About the Entity
NAFA was incorporated in August 2005. National Bank of Pakistan (NBP) is the major shareholder of NAFA with 54% stake, followed by Alexandra Fund Management Pte. Ltd - 36% stake. With an asset base of PKR ~2trl at end-Dec16, NBP is the one of the country's largest commercial bank. The CEO of NAFA holds a stake of 10% in the company. Presently, the company is managing a diversified portfolio of 22 open-end funds (12 Shariah compliant & 10 conventional), two pension schemes and several discretionary portfolios with AUM of PKR 109bln at end May-17.

NAFA’s nine-member BoD comprises the company’s CEO, three representatives of NBP, two representatives of Alexandra Fund and three independent directors. During the year Mr. Nausherwan Adil – Senior Executive Vice President & Group Chief Operations of NBP, is the chairman of the board. The founding CEO, Dr. Amjad Waheed, CFA, holds a Doctorate in Business Administration; he has extensive experience in domestic and international capital markets. He is supported by an experienced and qualified team of professionals.
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.
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