The Pakistan Credit Rating Agency Limited
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Madiha Sohail

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PACRA Maintains Rating of Pakistan Mortgage Refinance Company Limited | PP Sukuk

Rating Type Debt Instrument
(15-Apr-22 )
(16-Apr-21 )
Action Maintain Initial
Long Term AAA AAA
Short Term - -
Outlook Stable Stable
Rating Watch - -

Pakistan Mortgage Refinance Company (“PMRC” or the “Company”) , commenced business in 2018 as Pakistan's first mortgage refinance institution. The objective of the Company is to provide lending to both; Islamic and Conventional Financial Institutions and to address the long-term funding constraint in the banking sector, which was hindering the growth of the primary mortgage market in Pakistan. The assigned rating depicts a strong shareholding structure of PMRC. PMRC is sponsored primarily by Ministry of Finance (29%), National Bank of Pakistan, Habib Bank, United Bank, International Finance Corporation, Allied Bank, Bank AL Habib, Bank Al Falah, and Askari Bank. The assigned rating takes into account an experienced and professional management team and sound risk management controls. Initial financing has been under World Bank's Housing Project, on-lent by the Government of Pakistan. The Company’s primary source of finance will emanate from the bond/sukuk issue, hence targeting the development of bond/sukuk market in Pakistan. Over the years, PMRC’s financing portfolio increased manifolds. The assets side of the Company showed a significant increase, which supports this rating. Further, the rating also incorporates very low exposure to operational & market risk. During CY21, profit after tax has been declined by 25% majorly on the back of significant increase in interest expense as compared to last year. PMRC is planning a series of bonds/sukuk, in upcoming years, which will provide ample liquidity in years to come for further development of the mortgage housing finance industry in the country. The proceeds of the sukuk issued utilized in refinancing the residential mortgage/housing of the eligible financial institutions.
Strong capitalization indicators and a highly liquid profile would remain key rating drivers of the assigned rating. Furthermore, the funding profile of the Company draws comfort from the availability of long-term funding from the world bank (WB).

About the Entity
PMRC commenced business in 2018. It was established as Pakistan's first mortgage refinance institution to provide financing to both; Islamic and Conventional Financial Institutions. Major controlling interest rests with Ministry of Finance, Pakistan, at approximately 29%; the remaining 71% is owned by a pool of 10 private and public sector financial institutions. The board of directors comprises nine members, which includes six non-executive directors; one executive director and two independent directors. Six major financial institutional shareholders are represented on the board encompassing NBP, HBL, UBL, Askari, Alfalah and ABL.

About the Instrument
PMRC has issued Privately Placed Sukuk as instrument of redeemable capital. Issue amount is PKR 3,100mln. Profit (8.25% per annum) is payable semiannually on the principal amount. The first such profit payment of PKR 129mln fell due on Sep 18, 2021 and subsequently every six (06) months thereafter. The proceeds of the Issue were utilized to refinance the residential mortgages/housing portfolio of an eligible financial institutions. Principal amount will be redeemed in bullet at maturity. Security is based on hypothecation charge over specific receivables of PMRC with 25% margin (primary security) and in case, if the receivables falls short at any time, additional / adequate security will be provided to cover such short fall.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.