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The Pakistan Credit Rating Agency Limited
Press Release

Date
26-Oct-20

Analyst
Muhammad Adil Kaleem
adil.kaleem@pacra.com
+92-42-35869504
www.pacra.com

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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

PACRA assigns Preliminary Rating to PMRC - PP Sukuk

Rating Type Debt Instrument
Current
(26-Oct-20 )
Action Preliminary
Long Term AAA
Short Term -
Outlook Stable
Rating Watch -

Pakistan Mortgage Refinance Company – PMRC, commenced business in 2018 as Pakistan's first mortgage refinance institution to provide lending to both; Islamic and Conventional Financial Institutions. The purpose of the institution is to increase the availability of affordable mortgages, consequently reducing the shortage of housing in Pakistan. The regulatory structure is supportive to the initiative. The rating incorporate the robust shareholding of Ministry of Finance, National Bank of Pakistan, United Bank, Habib Bank, Bank Al Falah, Askari Bank, Allied Bank and Bank AL Habib in PMRC. Initial financing has been under World Bank’s Housing Project, on-lent by the Government of Pakistan. The Company’s primary source of finance will emanate from the bond/sukuk issue, hence targeting the development of bond/sukuk market in Pakistan. Over the years, PMRC’s financing portfolio increased manifolds. Investment book, primarily comprising of government securities, remained healthy. The business risk profile is strong evidenced by healthy asset yield and lower cost of funds. During 1HCY20, Company’s net markup income grew significantly when compared with the same period last year. PMRC’s financial risk profile is also considered favorable where equity base has witnessed organic growth. PMRC is planning series of bonds/sukuk, in upcoming years, which will provide with ample liquidity in years to come for further development of mortgage housing finance industry in the country.
Security structure of the Sukuk reflects exclusive hypothecation charge over specific receivables of the issuer with 25% margin as primary security. In case of any shortfall in receivables, PMRC shall provide charge on Islamic Deposit/Islamic Term Deposit/ GoP Sukuk etc. “Cash Equivalents” till such time receivables to be provided as primary security. The post-tax profit rate is higher; attributable to tax exemption till June, 2023, given to certain class of investors on income and capital gain of bonds issued by PMRC.

About the Entity
PMRC commenced business in 2018 . It was established as Pakistan's first mortgage refinance institution to provide financing to both; Islamic and Conventional Financial Institutions. Major controlling interest rests with Ministry of Finance, Pakistan, at approximately 33%; the remaining 67% is owned by a pool of 9 private and public sector financial institutions. The board of directors comprises of ten members, which includes eight non-executive directors; one executive director and two independent directors. Six major financial institutional shareholders are represented on the board encompassing NBP, HBL, UBL, Askari, Alfalah and ABL. While one member represents Ministry of Finance.

About the Instrument
PMRC is planning to issue a privately placed, secured Sukuk of PKR 2bln (with an additional PKR 1.5bln green shoe option). Tenor of the Sukuk is 3 years and the profit (7.70% p.a.) is payable semi-annually. Security structure of the Sukuk reflects exclusive hypothecation charge over specific receivables of the issuer with 25% margin as primary security. In case of any shortfall in receivables, PMRC shall provide charge on Islamic Deposit/Islamic Term Deposit/ GoP Sukuk etc. “Cash Equivalents” till such time receivables to be provided as primary security.

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.