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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 | Modaraba (Sep 16) [View]
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PACRA Maintains Entity Ratings of First Habib Modaraba
 Rating Type Entity
Current
(30-Dec-2016)
Previous
(07-Jan-2016)
 Action Maintain Maintain
 Long Term AA+ AA+
 Short Term A1+ A1+
 Outlook Stable Stable
 Rating Watch - -

The ratings reflect FHM’s robust financial profile emanating from healthy asset base, sound asset quality, and its sustained profitability. During FY16, the modaraba witnessed squeezed spreads from its financing operations; however, it managed to sail through its devised strategy to beef-up its business volumes to maintain its bottom-line performance. Capital structure is moderately leveraged. However, funding mix is adequately diversified. Going forward, the management, while continuing with its growth strategy, intends to expand its outreach to other areas of the country, especially those close to CPEC related projects. The ratings take into account good management quality and strong control environment.
The proposed bill of amendments in Modaraba ordinance 1980 (Clause 8B) is not allowing Modarbas to issue new COMs. Modarba Association is in discussion with the regulator on this issue and is very much hopeful for a positive outcome.
The ratings are dependent on the management's ability to sustain its competitive positioning while ensuring stable profitability.
About the Entity
First Habib Modaraba, established in 1985 and listed on Pakistan Stock Exchange, is a perpetual, multi-purpose Modaraba engaged in Islamic modes of financing, mainly Diminishing Musharka. Currently, FHM is managed by Habib Modaraba Management Company (Pvt.) Limited (HMCL). In a recent development, an ownership restructuring is underway. Whereby, while FHM's association with the House of Habib would remain intact, Habib Metropolitan Modaraba Management Company (Pvt.) Limited (HMMML) (wholly owned subsidiary of Habib Metropolitan Bank) will be the new management company of FHM. HMMML will hold 10% stake in Modaraba, while the remaining shareholding will be the same.
FHM has a six - member board of directors. Except MD, all board members are non-executive. Board members have a vast experience of banking and finance. The MD, Mr. Muhammad Shoaib, has been associated with the Modaraba since its inception. The management team consists of seasoned professionals who have been associated with the Modaraba for a long period.
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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