Press Release
Date: 23-Dec-22
PACRA Maintains Broker Fiduciary Rating of EFG Hermes Pakistan Limited

Rating Details Rating Type BFR
Dissemination Date Current (23-Dec-22 ) Previous (31-Mar-22)
Action Maintain Initial
Rating BFR 2+ BFR 2+
Outlook Stable Stable
Rating Watch - -

Rating Rationale Factor Comment
Ownership EFGH is primarily owned by EFG Hermes Frontier Holdings LLC having ~51% ownership stakes, while ~44% are owned by individuals and institutions.
Governance The board of directors comprises seven members including two independent directors, depicting a sound governance structure. Two board committees with independent representation are also present for ad
Management and Client Services The Company has a matrix organizational structure. The management comprises seasoned professionals reporting to their respective group heads. Client servicing is considered strong.
Internal Controls and Regulatory Compliance A group internal audit function and international oversight ensures a strong control framework. Dedicated risk management and compliance department is also present.
Business Sustainability Revenue from equity brokerage declined by ~48% in 9MCY22 as compared to SPLY. The performance is commendable in the backdrop of ~57% decline in market volumes.
Financial Sustainability Trade receivables comprises merely ~5% of equity at end-Sep'22, signifying low credit risk. The market risk is considered low as EFGH does not engage in proprietary book ivestments.

Key Rating Drivers The assigned ratings consider EFG Hermes Pakistan Limited's ('EFGH' or the 'Company') association with an established international financial services group "EFG Hermes". Leveraging foreign group expertise and oversight, EFGH provides exceptional research services to its clients. A robust multi-layer control framework is present through independent board representation, board committees, and group oversight. Despite CY22 being a challenging year for local equities, EFGH managed to contain the decline in traded volumes compared to the market and sustained its market share during 9MCY22. The continued sponsor support in the form of guaranteed loan arrangements of PKR 825mln provides comfort to the ratings. The sponsor reclassified its inter-company balances to enhance EFGH's equity by ~PKR 118mln. Going forward, the business environment is expected to remain challenging until clarity emerges on the economic front. The rating is dependent on sustainability and improvement in profitability from core income, increasing diversification of the topline, and maintaining market share. Meanwhile, upholding a strong control framework while effectively managing risks remains critical.

About the Entity
Legal Structure Listed
Year of Establishment 27-Sep-99
Type of License Trading and Self-clearing
Majority Ownership EFG Hermes Frontier Holdings LLC | ~51%

Regulatory Disclosures Analyst Applicable Criteria Related Research
Afnan Iqbal

Methodology | Broker Fiduciary Rating | Jan-22

Sector Study | Brokerage & Securities | Jan-22

Disclaimer This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA. 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 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.