Press Release

JCR-VIS Reaffirms Entity Ratings of Pak China Investment Company Limited

Karachi, June 20, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has re-affirmed the entity ratings of Pak China Investment Company Limited (PCICL) at ‘AAA/A-1+’ (Triple A/A-One Plus). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on June 30, 2017.

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, 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 increased on account of higher disbursements; fresh disbursements mainly pertained to petroleum, electronics, power, food & beverage, cement and sugar sectors. Concentration in the advances portfolio remains high as top ten exposures comprised more than half of gross advances at end-FY17. The company’s advances portfolio is almost entirely long-term in nature and comprises lending to the private sector. In line with the mandate, 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. During the period under review, asset quality indicators exhibited further improvement with reversal in provisioning from a long standing delinquent client thus impacting the profit by Rs. 100 million positively on account of the said recovery, whereas NPLs have been fully provided for.

By end-1QFY18, more than three-fourth of the investment portfolio comprise T-bills, therefore, credit and market risk from the same is considered low. 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. Remaining investment portfolio mainly comprise highly rated listed TFCs and unlisted Sukuks, while non-performing unlisted TFCs have been fully provided for. Market risk arising from listed equities is also considered manageable given its low quantum.

Liquidity profile of the company draws comfort from the high proportion of equity to assets; equity comprised around two-third of the asset base at end-1QFY18. Moreover, adjusted liquid assets-to-total borrowings also witnessed increase on a timeline basis primarily due to utilization of debt funding through collateralized repo borrowings. During FY17, spreads declined owing to maturity of higher yielding GOP securities, thereby reducing overall return on mark-up bearing assets and marginal increase in cost of borrowing. Net mark-up income increased owing to higher business volumes. Core income also stood higher on the back of higher net mark-up and fee based income.

PCICL maintains one of the highest paid-up capital amongst all DFIs. By end-1QFY18, 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 reducing dependence on borrowing and related costs of the company. Capital Adequacy Ratio (CAR) remains significantly above regulatory requirement.

For further information on this rating announcement, please contact the undersigned (Ext: 201) at 021-35311861-70 (10 lines) or Mr. Maimoon Rasheed at 042-35723411-13 or fax to 021-35311873.

Javed Callea

JCR-VIS Entity Rating Criteria: Government Supported Entities (June 2016)

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited VIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS, the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2018 VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS.

JCR-VIS Credit Rating Company Limited