VIS Reaffirms Entity Ratings of Pak China Investment Company Limited

Karachi, June 21, 2019 (PPI-OT): VIS Credit Rating Company Limited (VIS) has re-affirmed the entity ratings of Pak China Investment Company Limited (PCICL) at ‘AAA/A-1+’ (Triple A/A-One Plus). The medium to long-term rating of ‘AAA’ denotes highest credit quality, with negligible risk factors, being only slightly more than for risk-free debt of Government of Pakistan. The short-term rating of ‘A-1+’ denotes highest certainty of timely payment, liquidity factors are outstanding and safety is just below risk free short-term obligations of Government of Pakistan. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on June 20, 2018.

The assigned ratings of PCICL incorporate implicit support of its two sovereign sponsors, Government of Pakistan (GoP) and People’s Republic of China (PRC), with equal shareholding held through Ministry of Finance (MoF) and China Development Bank (CDB), respectively. The ratings also take into account strong capitalization, diversified revenue stream, sound liquidity, conservative risk appetite of the company and efforts of the senior management to implement shareholders’ strategic goals and vision.

During the outgoing year, gross advances portfolio declined in comparison to preceding year; however, total disbursements stood higher than the target. Fresh disbursements were made to construction, financial services, electronics, power, sugar and food sectors. The company’s advances portfolio is largely long-term in nature and comprises lending to the private sector. Concentration in the advances portfolio, albeit improved, remained on higher side at end-FY18.

During the period under review, infection ratio stood higher on account of higher incidence of NPLs. In line with the institution’s mandate, PCICL’s focus remains on advisory and matchmaking between Chinese and Pakistani industries through JV and advisory while also exploring the option of debt and equity exposure in high importance sectors thus promoting FDI in Pakistan. Further, due to revision of Free Trade Agreement between China and Pakistan, more investment and advisory opportunities are expected to be created.

In the backdrop of economic instability in the country and volatile interest rates, investments funded through borrowings from market were off-loaded. Accordingly, in order to mitigate the risk stemming from interest rate volatility, investment in T-bills was reduced, meanwhile investment in TFCs (listed and unlisted) was increased by end-FY18. Investment in associates include 5% investment each in Central Depository Company of Pakistan Ltd (CDC) and Pakistan Stock Exchange Ltd (PSX). These strategic investments have been made keeping in view PCICL’s long-term business plans besides expectation of recurring income. Market risk arising from listed equities is also considered manageable given its low quantum.

Given that the company has offloaded a major chunk of its government securities portfolio, borrowings channelized through repurchase agreements declined at the end-FY18. Overall liquidity profile of the institution remained strong as proportion of adjusted liquid assets to total deposits and borrowings increased sizably on a timeline basis. During FY18, despite slightly lower yield on mark-up bearing assets, spread increased on back of lower cost of funds.

Further, core income also depicted positive momentum primarily on account of higher net mark-up income and foreign exchange gain during FY18. PCICL maintains one of the highest paid-up capital amongst all DFIs. By end-1QFY19, Tier-1 capital augmented on the back of profit retention. Remaining authorized capital is expected to be injected going forward which while enhancing paid-up capital will also help in further reducing dependence on borrowing and related costs of the company. Capital Adequacy Ratio (CAR) remains significantly above regulatory requirement.

For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: http://jcrvis.com.pk/