The Pakistan Credit Rating Agency Limited
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Afnan Iqbal

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PACRA Maintains Broker Management Rating of EFG Hermes Pakistan Limited

Rating Type Broker Management
(23-Dec-22 )
(24-Dec-21 )
Action Maintain Maintain
Long Term BMR2+ BMR2+
Short Term - -
Outlook Stable Stable
Rating Watch - -

EFG Hermes Pakistan Limited ('EFGH' or the 'Company') has the backing of "EFG Hermes", an international financial services group with a presence in fourteen countries. The group has exceptional expertise in Frontier and Emerging markets, which EFGH leverages to provide stellar research services to its customers. Further, clients are provided with up-to-the-mark services in the form of mobile and web-based trading, access to traders and in-house customer services. A strong control environment emanates from group oversight and group internal audit functions which reports directly to the board Audit Committee. EFGH has established rigorous controls and policies to govern client relationships and handle grievance mechanisms. A formal risk management policies and procedures manual monitors all applicable risks associated with the entity. The management team comprises seasoned professionals with proper departmentalization and defined roles. A matrix organizational structure allows the Company to efficiently manage its operations and provides EFGH access to international best practices. EFGH has a robust governance framework with two independent and four non-executive directors representing the group. During 9MCY22, revenue from equity brokerage declined due to the contraction of volumetric activity in the market. Despite the market slowdown, EFGH managed to sustain its market share. However, the concentration of the topline to equity brokerage resulted in the Company suffering from a loss after tax of ~PKR 68mln during 9MCY22. EFGH does not partake in proprietary investment books, thus limiting market risk. The sponsor continues to support EFGH through a guaranteed loan facility of PKR 825mln. A reclassification by the sponsor of inter-company balances enhanced EFGH's equity base by ~PKR 118mln during the year. The Company plans to continue building its online presence through the introduction of a customized mobile application and marketing strategy.
Going forward, the rating is dependent on upholding a strong control framework while effectively managing risks. Meanwhile, sustainability and improvement in profitability from core income, diversification of the topline and maintaining market share are critical.

About the Entity
EFG Hermes Pakistan Limited, a publicly listed company established in 1999, provides securities research and brokerage services to institutional and individual clients. It is also engaged in investment banking activities. The Company is 51% owned by EFG Hermes Frontier Holdings LLC, a wholly-owned subsidiary of EFG Hermes Holding S.A.E. The focus of EFG Hermes Frontier Holding LLC is to increase footprints and explore new opportunities in frontier markets of the world. EFG Hermes specializes in asset management, securities brokering, investment banking, private equity and research. EFG Hermes is the first foreign investment bank and securities broker to be physically present in Pakistan. The Company operates from its head office based in Karachi, Pakistan.

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.