JCR-VIS Credit Rating Company Limited has reaffirmed the medium to long-term entity rating of Saudi Pak Industrial and Agricultural Investment Company Limited (SAPICO) at 'AA+' (Double A Plus) with a 'Stable' Outlook. Short-term rating has also been reaffirmed at 'A-1+' (A One Plus).
The ratings of SAPICO incorporate joint venture holding of two sovereigns ie, Government of Pakistan and Kingdom of Saudi Arabia. Ratings draw comfort from the strong financial risk profile of the Kingdom of Saudi Arabia, evidenced from the sovereign ratings of 'AA-/Stable/A-1+' assigned to it by a global credit rating agency.
Given the difficult operating environment for the secondary market borrowers, the company restricted expansion during FY10 and the trend continued in 1Q11. The company shifted some of its liquid investments partly towards advances portfolio and partially to repay its borrowings and COIs. Following a strategy to reduce investment in both listed and unlisted equities, the company decreased exposure in quoted equities, reducing it further during the ongoing year. Recently, the company has also concluded an agreement for sale and purchase of shares with a strategic investor for its shareholding in Saudi Pak Insurance Company Limited with the transfer of management control.
The spreads, which were already under pressure, declined further during FY10. The company booked a significant loss of rupees 444 million (FY09: 61.5m) from dealing in foreign currencies. This along with provision for diminution in the value of investments, which includes provisioning against a leasing subsidiary, resulted in a loss of rupees 503.9 million against a net profit of rupees 418.9 million in FY09. During FY11, the company is expected to book further loss from dealing in foreign currency. While the company's initiative to terminate the swap agreements has an adverse impact in term of losses, it will insulate against exchange rate volatility once all swap contracts mature.