Draft PR
The Pakistan Credit Rating Agency Limited

Rai Umar Zafar

Ahmed Sheikh

Applicable Criteria

  • Methodology | Debt Instruments Rating Methodology (Jun 17)
  • Methodology | Criteria Modifiers (Jun 17)
  • Methodology | Holding Companies (Jun 17)

Related Research

  • Sector Study | Holding Company (Jun 17)
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PACRA Assigns Preliminary Rating to proposed Sukuk by Dawood Hercules Corporation Limited
 Rating Type Debt Instrument
 Action Preliminary
 Long Term AA
 Short Term 
 Outlook Stable
 Rating Watch -

The ratings signify DH Corp’s strong group structure and a well-diversified presence in various industries through associates and subsidiaries. The oversight of investments is done through a structured process. The company is setting its foot in the telecommunication sector by acquiring 45% equity stake in edotco Pakistan (Pvt.) Limited. The company would be managing a portfolio of telcom towers. Since this portfolio is being acquired from a telco, edotco should be able to manage this -operationally rather swiftly. DH Corp's financial profile continues to benefit from the ensuing dividend stream of the underlying portfolio – mainly Engro Corp and HUBCO. The company intends to divest HUBCO. However, its divestiture would be planned in a way either repay the debt significantly or match expected inflow of dividends from edotco. This would ensure limited drag on financial profile. The rating draws comfort from company’s adequate leverage and good debt coverages. To fund its investment in edotco, DH Corp plans to issue a second Sukuk along with a syndicate loan. The Sukuk has a low risk profile as it is secured through a charge on the shares of the company’s core investment inclusive of 50% margin. The business acumen of the sponsoring family and strong governance practices provide support to the ratings.

The ratings are dependent upon the group's overall risk profile. The targeted growth may not elicit rise in the risk exposure. At the same time, the policy to distribute its income, while maintaining a strong financial risk would be critical. Timely and successful investment transition remains important.
About the Entity
Dawood Hercules Corporation Limited was established in January 2011. It carries the legacy of Dawood group of investing and nurturing multiple businesses over the last few decades. The company is intended to act as a key holding company for the group. It primarily manages investments in its subsidiary and associates.

The company's eleven member Board of Directors includes four representatives of Dawood family. The remaining six members are non-executive and independent directors. Mr. Hussain Dawood, the patriarch of Dawood family, serves as the chairman of the board. Mr. Inam-ur-Rahman is the CEO. Mr. Inam holds a graduate degree in Electrical Engineering from UET and an MBA from Lahore University of Management Sciences.

About the Instrument
DH Corp is in process to issues rated, Over the Counter Listed and Secured Islamic Certificates (“Sukuks”) of PKR 7 billion (including PKR 2 billion green shoe option). The proceeds from the issue will be used primarily to fund planned equity investments in addition to re-profile the existing debt. The issue has tenor of five years with fifteen months grace period. The principal will be repaid in eight semi annual installments. Profits will be payable quarterly at the rate of (3M Kibor + 1%). The issue is secured through Pledge of shares of Engro Corporation Limited, inclusive of 50% margin, in a designated CDC account and Floating or Hypothecation charge on all present and future assets of the Company inclusive of a 25% margin.
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.