Final PR
The Pakistan Credit Rating Agency Limited

Aisha Khalid

Applicable Criteria

  • Rating Modifiers | Outlook and Rating Watch (Jun 16) [View]
  • Correlation between Long-term and Short-term rating (Jun 16) [View]

Related Research

  • Sector Study | Credit Guarantee Institutions (Jan 17) [View]
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PACRA Maintains Entity Ratings of GuarantCo Limited
 Rating Type Entity
 Action Maintain Initial
 Long Term AAA AAA
 Short Term A1+ A1+
 Outlook Stable Stable
 Rating Watch - -

GuarantCo Limited, an international Joint Venture development financial institution, is directly and indirectly owned by five highly rated sovereigns. In CY16, Australia acquired one percent (1%) stake in GuarantCo through PIDG; although small, but presence of another financially sound sovereign adds to the sponsors’ strength. GuarantCo mainly operates in low-income, below investment grade countries. Its objective is to facilitate flow of debt capital to projects having bearing on infrastructure and a positive long-term impact by offering credit guarantees. It is cautiously building its guarantee portfolio with adequate emphasis on diversification - geographical, entity, and sector. More than 50% of the revenue comes from Africa, and GuarantCo is focusing to gain more exposure in Asia supported by their recently opened office in Singapore. Till now, there has been relatively high impairment (13%) in the quality of guarantee assets. However, given the small size and short-age of the portfolio, this might not be reflective of otherwise detailed and robust credit evaluation and monitoring framework. The Company maintains good provision coverage. During 9MCY16, owing to a significant cut in provisioning expense, the Company’s performance relatively improved and observed a reduction in loss YoY; excluding a one-time expense of management contract cancellation fee with the previous fund manager, the Company becomes marginally profitable. Meanwhile, the sponsors gradually injected fresh funds to keep the company equipped with robust capitalization. A healthy treasury investment portfolio - mainly comprising fixed income corporate bonds and US Treasury - funded by its equity. Thus liquidity stayed strong along with sizable income stream. During CY16, the Company appointed GuarantCo Management Company, a fully owned subsidiary of Cardano Development, as the new fund manager; responsible for commercial operations of GuarantCo. The contract has been assigned for relatively a longer period which is expected to help the management, to pursue a well-conceived strategy to achieve profitability in the near term. Nevertheless, the management's success in achieving its business objectives while capitalizing on its identified niche – infrastructure development - remains to be seen.

GuarantCo's ratings are dependent on its robust ownership structure, well-supported by implicit - indeed demonstrated – commitment by the sponsors. The Company's ability to achieve desired growth in its guarantee portfolio is important to pull off from bottom-line losses. Meanwhile, close monitoring of asset quality remains critical.
About the Entity
GuarantCo Limited was incorporated in August 2005. The company has executed forty one projects with exposure in seventeen countries to date. The ownership of GuarantCo lies with five governments – four of which (United Kingdom, Sweden, Switzerland, and Australia) own through Private Infrastructure Development Group (PIDG), and the Netherlands through FMO (Dutch Development Bank). GuarantCo's seven-member BoD comprises all non-executive directors who are qualified professionals with emerging and frontier market experience. In January 2017, Mr. Lasitha Perera replaced Mr. Chris Vermont as the new CEO. Mr. Perera was previously the Chief Investment Officer of the Company since 2007. Mr. Andrew Bainbridge, the chairman of GuarantCo currently holds the position of Group Head-US Supervisory Remediation at Standard Chartered Bank and has been the chairman since March 2013.
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.