Final PR
The Pakistan Credit Rating Agency Limited

Rai Umar Zafar

Mohsin Naseer

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 Riba Free Saving Fund
 Rating Type Stability Rating
 Action. Maintain Maintain
 Long Term A(f) A(f)
 Short Term - -
 Outlook Stable Stable
 Rating Watch - -

The mandate of the fund is to earn a reasonable rate of return in Shariah compliant manner along with capital preservation by constructing a portfolio of highly liquid short-term products.

The rating incorporates the fund's investment philosophy; this is primarily focused to optimize its return by building a portfolio of relatively lower rated avenues - not below 'A-' (single A minus). The rating reflects strong liquidity profile of the fund emanating from the maximum exposure of fund as cash balances. At end-May 17, 93.2% of the fund's assets were placed as cash balances with various commercial banks, with minimum rating of 'A-'. Remaining assets of the fund were invested in GoP Ijarah sukuk. The unit holding pattern of the fund is moderately concentrated with top10 investors representing 49% of the fund.

Going forward the fund intends to enhance the share of GoP Ijarah Sukuks in the portfolio while keeping rest of the assets as daily cash balances and placements with 'A-' and above rated bank. Material changes in the fund's asset allocation strategy, which could negatively impact the fund's credit quality and exposure to interest rate risk, remains 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.