JCR-VIS reaffirms entity ratings of Saudi Pak Industrial and Agricultural Investment Company Limited

JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity rating of Saudi Pak Industrial and Agricultural Investment Company Limited (Saudi Pak) at 'AA+/A-1+' (Double A Plus/A-One Plus). Outlook on the assigned rating is 'Stable'. The previous rating action was announced on June 09, 2015. Ratings assigned to Saudi Pak take into account its shareholders' profile, with two sovereigns, Government of Pakistan (GoP) and Kingdom of Saudi Arabia (KSA), having an equal stake in the company under the terms of a joint venture agreement.
Given the thin spreads in lending to top tier corporate, the company's risk appetite remains moderate, with disbursements mainly targeted towards mid tier companies. With adequate provisioning against non-performing loans, net infection has trended downwards in the ongoing year. Major portion of the investment portfolio has been deployed in government securities; the same is exposed to interest rate risk given high duration of the PIBs portfolio. There is a sizeable unrealised gain on government securities. Exposure in listed equities as a proportion of tier-1 equity is low; equity portfolio return outperformed benchmark return during FY15.
Given growth in mark-up bearing assets and higher rental income, core income posted healthy growth during FY15. However the same did not translate onto the bottom line of the company on account of lower gain on sale of securities and provisioning expense against non performing loans and investment as against reversal in the preceding year.
Aggregate non-performing/non-earning assets represented one-fourth of the asset base and continue to put a drag on the company's profitability. Overall growth in balance sheet footing is expected to remain conservative in the coming years with focus on NPL recovery and further strengthening of internal control infrastructure.
As a secondary market borrower, the company is primarily reliant on funding from other financial institutions which are time based liabilities. More than three-fourth of the borrowings are short term; various liquidity gap limits are monitored on an ongoing basis to managing the associated risk. Overall liquidity profile of the institution remained sound.-PR