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The Pakistan Credit Rating Agency Limited

Date
30-Dec-2016
Analysts
Amara Gondal
amara.gondal@pacra.com

Sanna Khan
sanna.khan@pacra.com

+92-42-35869504
www.pacra.com
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 16) [View]

Related Research

  • Sector Study | Investment Banking (Jan 16) [View]
Disclaimer
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PACRA maintains IGI IBL ratings, while placing on Rating Watch
 Rating Type Entity
Current
(30-Dec-2016)
Previous
(14-Jan-2016)
 Action Rating Watch Maintain
 Long Term BBB- BBB-
 Short Term A3 A3
 Outlook Developing Positive
 Rating Watch RatingWatch -

In a recent development, the sponsor of IGI group intends to redesign the overall corporate structure of its multiple businesses primarily in the area of financial services. Formation of a Group financial services holding company is proposed. A two-step transaction is instigated involving i) merger of IGI Investment Bank Limited (IGI IBL) with and into IGI Insurance company (IGI) and ii) demerger of IGI Insurance to form a Holding Company having separate subsidiaries for different business lines – General Insurance, Life Insurance, Brokerage and Investments. In this regard, the board of directors of IGI Investment Bank Limited (IGI IBL) has made two important decisions: (i) cancellation of the previously proposed merger of IGI Finex Securities Limited, wholly owned subsidiary of IGI IBL, with and in to the IGI IBL, (ii) approval of IGI IBL’s merger with and into IGI Insurance Limited – having 42% stake in IGI IBL. The merger would be under share swap arrangement. Shareholders of IGI IBL will be issued IGI’s shares according to a swap ratio of 1:92. The transaction is in process and will complete once the requisite regulatory approvals are obtained.
On standalone basis, IGI IBL maintains a subdued operational profile. Business operations are squeezed. However, the bank continued to generate limited revenues from non-fund based segments. Meanwhile, sponsor’s support remained intact.
In contemplation to above merger and otherwise halted performance of the bank PACRA has placed the IGI IBL’s ratings on Rating Watch [Long term: BBB, Short term: A3], while the outlook is developing. Entity ratings of IGI IBL would be withdrawn if the merger is finalized and IGI IBL would seize to exist as an entity. PACRA would continue to monitor these developments and the ratings would be updated accordingly.
IGI IBL merger with and into IGI Insurance is of paramount importance. This merger and subsequent demerger to form a holding Company will bring further focus to the group’s strategy to deliver various financial services.
About the Entity
IGI IBL is majority owned by the Packages group (49%), directly by individuals and through different group companies, mainly IGI Insurance Limited (42%). Packages group is a well-diversified group with interests in insurance, real estate, packaging, and consumer segments. IGI Finex Securities Limited, provides brokerage services to all investors across the spectrum including retail, institutional and foreign.
The Board of Directors of IGI IBL comprises seven members. All members with the exception of CEO, are non-executive. Amongst the non-executive directors, three represent the Packages group, while the others are independent. Mr. Raza Hussain Rizvi, a Chartered Accountant by profession, is the CEO of the Bank. Mr. Rizvi has been associated with IGI group for last six years in various roles. The management team carries adequate experience profile.
IGI Insurance Limited, established in 1953, is listed on Pakistan Stock Exchange. IGI Insurance is a medium sized player (~4.2%) in the general insurance industry with sound underwriting performance. The company has a sizeable strategic investments book (Book value: ~ PKR 15bln, Market Value: ~ PKR 68bln at end-Sep16). IGI Life – 82% owned subsidiary of IGI Insurance - is the fourth largest life insurance company in the private sector (market share end-Sep16: ~7%).
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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