PACRA Maintains Instrument Rating of Pakistan Services Limited | Sukuk | Mar-18

The ratings reflect Pakistan Services Limited’s (The Company) strong position in the hospitality industry as the market leader drawing comfort from its association with Hashoo Group. Pakistan Services Limited has witnessed growth over the years (in line with Industry dynamics) amid improving security conditions and progression of CPEC with stable margins. However, ongoing geopolitical scenario coupled with slowdown in domestic economic activity has impacted the Company's revenues and profitability through 9MFY19. The Company has taken cost control measures to improve margins, however, a significant impact is yet to be seen. The Company has modest leveraging and a large asset base. Relatively higher borrowings and rising interest rates have put coverages under pressure. This trend is expected to continue as cashflows may remain suppressed till new properties commence operations. The management intends to dispose off some of its properties (real estate assets) to supplement its liquidity. The Company has liquid investments and cash to meet its obligations and maintaining this liquidity cushion will be important.
Ratings are dependent on effective implementation of envisaged strategy while maintaining modest leveraging and strengthening coverages. Any significant delay in commencement of new projects and/or further deterioration in margins leading to lower coverages and liquidity will have a negative impact on ratings. Meanwhile, maintaining sufficient liquidity for debt repayment remains critical.

About the Entity
Pakistan Services Limited was established in 1958 and is quoted on Pakistan Stock Exchange. It owns and operates Pearl Continental Hotels – the largest hotel chain of the country with 1,526 rooms. Major shareholding (~89%) lies with Hashoo Group. The Group is one of the leading business conglomerates of Pakistan and has business interests which span across various sectors both locally and globally.

The Company has a nine member BoD, with one independent member. Mr. Sadruddin Hashwani – founder of the Hashoo Group – chairs the board. He has experience of over 5 decades of managing different businesses. Mr. Murtaza Hashwani acts as the Chief Executive Officer.

About the Instrument
Pakistan Services Limited has issued an unlisted, secured, long-term, privately placed Sukuk amounting to PKR 7,000mln (inclusive of green-shoe option of PKR 2,000mln). The bond has a tenor of six years from the date of issue with a grace period of 18 months. The bond is secured with the present and future immovable assets of PC Lahore with 25% margin. Profit rate is payable at 6M-KIBOR + 100 basis points and is to be paid semi-annually in arrears, whereas, principal payment is to be paid in nine semi-annual installments from the expiry of the grace period. The Company issued its first tranche (~PKR 2,333mln) in March 2018, second (~PKR 1,362mln) in July 2018 and the third in January, 2019 (~PKR 3,305mln). Principal repayment will be due in March 2020.