The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Maintains Entity Ratings of GuarantCo Limited

Rating Type Entity
(30-Jun-20 )
(28-Dec-19 )
Action Maintain Maintain
Long Term AAA AAA
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

GuarantCo Limited, an international Joint Venture development financial institution, is the local currency guarantee arm of the Private Infrastructure Development Group (PIDG). It is directly and indirectly owned by five highly rated sovereigns. Support of the sponsors is evident from time to time in the form of injection of capital. GuarantCo mainly operates in low income, below investment grade countries as per its mandate. GuarantCo is aggressively building its guarantee portfolio which poses significant concerns while keeping stagnant equity base, resulting in increased leveraging of 2.24x during CY19, however remains within the cap of 3x approved by PIDG. Furthermore, it is also learnt that company intends to enhance its callable capital. Covid-19 has posed challenges to almost all segments of the economy; worldwide and domestically ratings are getting negatively impacted. The ramifications would continue to unfold, warranting vigilance and timely actions where needed.
The company’s portfolio is tilted to South Asia, although GuarantCo is focusing to increase more exposure in E&S Africa, where asset quality remains major concern as pressures are building up in key markets due to COVID-19 pandemic. Over the recent years, enhanced exposure in India is evident of the same. Good investment income is supplementing core business over the years. Profitability has witnessed remarkable growth and during CY19, total profit for the period is reported as $ 2.13mln after few years of weak profitability. Enhanced profitability is attributable to remarkable fair value gain on derivative instruments, income from financial guarantee contracts & investment income. Liquidity indicators remained in good range.
GuarantCo Management Company, a fully owned subsidiary of Cardano Development, is the fund manager responsible for GuarantCo's commercial operations. GuarantCo's ratings are dependent on its robust ownership structure & strong liquidity buffer. The Company's desired growth in its guarantee portfolio will increase leveraging to 3x in CY20; considered high when asset quality is deteriorating. Hence, prudent expansion and close monitoring of asset quality and internal obligor rating remains critical.

About the Entity
GuarantCo Limited was established in 2006. The company has executed fifty projects with exposure in nineteen countries to date. The ownership of GuarantCo lies with five governments – United Kingdom, Netherlands, Sweden, Switzerland, and Australia. With the exception of the Netherlands Development Finance Company (FMO), which contributes 11% of GuarantCo's total paid-in capital, the agencies act jointly under the umbrella of the Private Infrastructure Development Group (PIDG). GuarantCo's five members BoD comprises all non-executive directors who are qualified professionals with emerging and frontier market experience. Mr. Lasitha Perera is the CEO and was previously the Chief Investment Officer of the Company and has been associated with GuarantCo since 2009. Ms. Yukiko Omura is the chairperson of the board since 1st January 2018. Ms. Yukiko Omura carries three decades of experience in multilateral development agencies and leading investment banks.

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.