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The Pakistan Credit Rating Agency Limited

Date
10-Nov-2017
Analysts
Jhangeer Hanif
jhangeer@pacra.com

Saliha Sajid
saliha.sajid@pacra.com

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

  • Methodology | Non-Banking Finance Companies (Jan 17)
  • Correlation between long-term and short-term rating scale (Jun 17)
  • Criteria Modifiers (Jun 17)

Related Research

  • Sector Study | Modaraba & NBFCs (Mar 17)
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PACRA Maintains Entity Rating of KASB Modaraba
 Rating Type Entity
Current
(10-Nov-2017)
Previous
(26-May-2017)
 Action Maintain Maintain
 Long Term BBB+ BBB+
 Short Term A2 A2
 Outlook Stable Stable
 Rating Watch - -

The ratings reflect KASBM's adequate financial profile emanating from low-leveraged capital structure, depicting maturing COM’s. The Modaraba continues to remain profitable, albeit miniscule. In FY16, SECP restricted KASBM from raising new CoMs. This decision is subject to reconsideration depending on the performance of the Modaraba in FY17 but still pending with SECP. Owing to this restriction, KASBM has experienced contraction in its COMs (3MFY18: PKR 73mln; FY17: PKR 100mln; FY16: PKR 425mln). KASBM has religiously met all the maturities of COM’s. The Modaraba witnessed squeeze in its assets, with a consequent impact on performance of the Modaraba. Liquidity is being well managed. However, the management's ability to establish a stable and continuous non-deposit funding stream would be demonstrated over a longer horizon. Moreover, good asset quality provides comfort. Modaraba is making continuous efforts to recover its receivable and negotiating for more funding lines.
To meet the funding challenge though, the management is also controlling its cost structure within bound. Moreover, the management intends to follow cautious growth stance with continued focus on asset quality by cost cutting. Modaraba more focus is towards more funding lines from banks and search for new businesses for Modaraba to survive.
The ratings are dependent on the management's ability to arrest the declining trend, indeed restore its profitability level. Vigilance in liquidity management remains important. Meanwhile taking new funding lines and tapping new stable avenues of funding to improve business profile is important.
About the Entity
KASB Modaraba (KASBM) established in 1990, is a perpetual, multipurpose Modaraba with a network of 1 head office and 3 branches. The Modaraba, listed on Pakistan Stock Exchange is primarily engaged in financing through Ijarah, Morabaha, Musharaka, Diminishing Musharaka and Modaraba. Modarba’s management company is KASB Invest (Private) Limited (KIPL). KIPL is majorly owned by Mr. Muzaffar Ali Shah Bukhari (43%) and Mr. Mahmood Ali Shah Bukhari (43%). KIPL has 50% stake in the Modaraba while BankIslami Pakistan Limited owns 22% and Sulaiman Ahmed Al-Hoqani has 16% stake in KASBM. BoD of KIPL comprises four members including the CEO of KASB Modaraba. Syed Waseem ul Haq Haqqie, is the chairman of the board, a senior chartered accountant by profession. Audit and HR Committees are the two sub-committees, chaired by Mr. Farrukh Ansari (an independent director). Aftab Afroz Mahmoodi is the CEO. He has over all 32 years of experience with 22 years in the financial sector. He is supported by a Competent and experienced management team.
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.