JCR-VIS upgrades the short-term rating of KASB Modaraba to A-2

Karachi, January 22, 2013 (PPI-OT): JCR-VIS Credit Rating Company Limited (JCR-VIS) has upgraded the short-term rating of KASB Modaraba (KASBM) to ‘A-2’ (A-Two) from ‘A-3’ (A-Three). Medium to long term rating of KASBM has been maintained at ‘BBB+’ (Triple B Plus); Outlook on the same has been revised from ‘Stable’ to ‘Positive’.

KASBM is managed by KASB Invest Pvt. Ltd, a subsidiary of the KASB group; majority of the certificates of the modaraba are also held by the same group. KASBM experienced significant growth in FY12 and increased focus on financing activity, with leverage rising during this period. Growth was primarily funded by Certificates of Musharikah (COM) deposits, which are largely retail in nature. Proportion of short-term COMs increased in FY12 in line with management’s strategy to minimize profit rate risk on account of anticipated downward movement in discount rate. While current ratio has dipped slightly below 1x, good rollover history of COMs mitigates liquidity risk to an extent. Apart from being a stable source of funds, average cost of COMs is also lower than bank borrowings. The rating decision takes into account growth, investor mix and stability in COM portfolio.

Higher leverage could not be translated into higher profitability, as operating expenses increased at a higher rate than net revenues. Concentration in financing portfolio is also on the higher side. With the manufacturing sector beset by security risks and power crisis, KASBM remains focused on commodity financing. The modaraba has maintained sound controls in terms of choice of commodities, warehousing and collateral margins; risk arising on the commodity financing portfolio is manageable.

There has been a recent change at the helm of the modaraba in line with changes and restructuring at the group level while injection of equity is also on the anvil; this is however likely to be absorbed by anticipated growth in business. Leverage is projected to increase further, going forward, though remaining under 4.5x over a three year horizon. Maintaining sound asset quality and deepening access to retail investors at higher business volumes will allow the modaraba to sustain its risk profile.

For more information, contact:
Mr. Javed Callea
Advisor
JCR-VIS Credit Rating Company Limited
Tel: +9221 35311861 (10 lines) (Ext: 501)
Fax: +9221 35311872-3
E mail: javed.callea@jcrvis.com.pk

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