PACRA Upgrades Entity Ratings of Dawood Hercules Corporation Limited

The ratings signify Dawood Hercules Corporation Limited's (DH Corp) strong risk profile as an InvestCo. DH Corp is currently transforming its investment portfolio. The transformation process includes exit from the energy sector (Hub Power Company Limited), which has materialized into healthy gains, to penetrate telecommunication sector. DH Corp is acquiring 45% equity stake in Edotco Pakistan (Pvt.) Ltd. which is going to be a leading telecom tower operator. As a first it is acquiring 14,000 towers from Jazz, countrys' leading telco. The technical expertise and remaining stake to this venture are coming from Axiata, Malaysia's leading communication company.The dividend flow from this is expected to start in the medium term. Meanwhile, DH Corp would have a steady, indeed increasing, dividend stream from Engro Corp. This cashflow provides strong debt coverage. DH Corp's debt is primarily in the form of Sukuks. Here a portion is used to fund the Edotco investment, while the remaining support treasury/capital market investments. The business acumen of the sponsoring family and strong governance practices provide support to the ratings.
The ratings require upholding current design of the overall risk profile. The targeted diversification in investment portfolio may not elicit rise in the risk exposure while adding income flow. At the same time, the managements commitment to maintain existing debt levels and coverages would be critical.

About the Entity
Dawood Hercules Corporation is a public listed company incorporated in 1968. The principal activities of the company is to manage the investments in its core and strategic investments. Dawood Group (Dawood Family and associates) holds a 34% stake in DH Corp through its’ corporate (20%) and individuals (14%). 54% shareholding is held by other associated foreign companies. The BoD is chaired by Mr Hussain Dawood, the patriarch of Dawood family.Mr. Inam-Ur-Rehman, is serving as CEO since Dec ’16.

About the Instrument
DH Corp issued over the counter listed and secured Sukuk of PKR 5.2bln in Nov '17 to qualified institutional buyers through private placement. The Sukuk bears a profit of 3M Kibor + 1%, payable quarterly installments, in arrears. It has a tenor of 5 years. Principal will be re-paid in 8 semi-annual payments starting from 18th month from the issue date starting May '19. The instrument would fully mature in Nov '22.
DH Corp issued it's second sukuk of PKR 6bln in Mar '18 to qualified institutional buyers through private placement. It is an over the counter listed and secured Sukuk bearing a profit of 3M Kibor + 1% payable quarterly, in arrears. It has a tenor of 5 years. Principal will be re-paid in 8 semi-annual payments starting from 18th month from the issue date starting Sept ‘19. The instrument would fully mature in Feb ’23.

The Sukuks have a low risk profile as it is secured through a charge on the shares of the companys core investment inclusive of 50% margin.