The Pakistan Credit Rating Agency Limited
Press Release


Muhammad Atif Chaudhry

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PACRA Revises the Rating of Pakistan Services Limited | Sukuk | Mar-18

Rating Type Debt Instrument
(15-Mar-23 )
(24-Mar-22 )
Action Downgrade Maintain
Long Term A- A
Short Term - -
Outlook Negative Developing
Rating Watch Yes Yes

Ever since the pandemic of Covid-19, the hotel sector has been under pressure. The relief provided by the regulator furnished much-needed respite to the players. While occupancy level became a challenge, the cost of doing business witnessed a constant rise. In full cognizance of the situation, the company was pursuing a sale plan of its fixed assets, primarily properties. Post Covid-19, the operational cashflows improved, though these were considered insufficient by the management to make repayments. The management was hopeful to complete the sale transaction of the company's properties to remain afloat. They were able to sell a few but some big large assets could not be disposed off as targeted. Over the last couple of months and especially after the rise in political instability, unprecedented increase in interest rates and hyperinflation, the management started to face material uncertainty around the company's operations, as disclosed in the recent published financial statements. This led to the revision and adjustment of ratings. The management has represented that they have express intention to settle the debt, while aligning the financial obligations with the operational realities. A detailed plan is under discussion with lenders, wherein the company is settling the debt over the future course of time. A sizeable portion of the debt would be linked with the sale of some of the prime properties that the company owns, while the rest would be aligned to the emerging pattern of cashflows. The management seems to be confident and committed about it. The success of these initiatives is crucial to the future ratings of the company; and hence sukuk. Sustainability of operations and materialization of optimal cashflows are important.

About the Entity
Pakistan Services Limited was established in 1958 and is quoted on the Pakistan Stock Exchange. It owns and operates Pearl Continental Hotels – the largest hotel chain of the country with 1,394 rooms. The Company has a nine-member BoD, with three independent members. Mr. Sadruddin Hashwani – founder of the Hashoo Group – is the Chairman of the board. He has experience of over 5 decades of managing different businesses. Mr. Murtaza Hashwani acts as the Chief Executive Officer of the Company.

About the Instrument
Pakistan Services Limited issued an unlisted, secured, long-term, privately placed Sukuk amounting to PKR 7,000mln. The Sukuk initially had a tenor of six years from the date of issue with a grace period of 18 months. Under the Regulator’s Relief Package amid COVID-19, the Company availed deferment of the outstanding principal amount of PKR 6.6bln. Consequently, the tenor has been extended to two and a half years. Till Sep'22 fifteen interest payments amounting to ~PKR 2,723mln and principal amounting ~PKR 929mln have been paid by the Company. However, due to the financial constraints faced during COVID-19, the Company approached the sukuk's investors for rescheduling/restructuring of its existing outstanding loan amounts along with deferred markup and unpaid installments, the terms and conditions along with tenor are under discussion and management expects the rescheduling/restructuring of this financing arrangements to be finalized soon.

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.