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The Pakistan Credit Rating Agency Limited
Press Release

Date
18-Aug-21

Analyst
Maryam Ijaz
maryam.ijaz@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 Initial Rating to U Microfinance Bank Limited | TFC - PKR 3,500mln

Rating Type Debt Instrument
Current
(18-Aug-21)
Previous
(04-Jan-21)
Action Initial Preliminary
Long Term AA- AA-
Short Term - -
Outlook Stable Stable
Rating Watch - -

The rating of the TFC reflects the coverage of the instrument through the security structure. Among other features of the security structure, 50% of the TFC's amount is secured against lien on government securities of a similar tenor. The security agent will have the right to en-cash proportionate amount from the pool to settle due payments, should the issuer not be in any eventuality, in a position to make the payment. U Microfinance Bank Limited (UMBL) is a fast growing player in the Microfinance Sector (End-Dec'20: 9.3% market share in total Gross Loan Portfolio). The Bank's ambitious growth strategy encompasses multi-faceted targets focused towards achieving growth in the retail banking segment, developing digital banking platform and building a wholesome treasury book. The Bank's funding needs are primarily fostered through a growing deposit base, coupled with sizable borrowings. Sponsor support is reflected by way of conversion of subordinated debt into Tier-I capital in the form of preference shares of PKR 1,000mln in Dec 2020. Almost half of the Bank’s portfolio is gold backed which provides a strong mitigant against potential credit risk.
COVID-19 is an ongoing challenge. While it has taken a toll on many businesses, its ramifications are still unfolding. The proactive measures taken by the regulators and other concerning bodies have mitigated the potential damages much anticipated from this pandemic. Vigilance is required as the loan repayment cycle remains amid variants of the pandemic continue to re-emerge. Pandemic (Covid-19) is a concern; its continuity would pose challenges. Average loan size of the Bank is on the higher side in relation to its peers on account of gold backed lending. The rating is dependent upon the Bank's compliance with the agreed terms.

About the Entity
In 2012, Pakistan Telecommunication Company Limited (PTCL) acquired 100% shareholding of Rozgar Microfinance Bank Ltd which was established in 2003 as a district wide microfinance bank. Henceforth, its name was changed to U Microfinance Bank Limited (UMBL). PTCL itself is co-owned by the Government of Pakistan (62%) and Emirates Telecommunication Group Company (Etisalat) (26%), a state owned Telecom Corporation of UAE. Management control of PTCL rests with Etisalat. The Board of Directors of UMBL consists of eight directors, comprising representatives of Etisalat, PTCL and Government of Pakistan along with two Independent Directors and one Executive Director. Mr. Burak Sevilengul, the Chairman of the Board, has over 24 years of experience. Mr. Kabeer Naqvi, the President & CEO, is also an Executive Director on the Board of UMBL and has 20 years of professional experience to his name and has been with the Bank since Sep’15.

About the Instrument
U Microfinance Bank Limited issued privately placed and secured Term Finance Certificates (TFC) up to PKR 3,500mln. Profit is payable semi-annually in arrears calculated on a 365 day year basis on the outstanding principal amount. The first such profit payment will be falling due six (06) months from the Issue date and subsequently every six (06) months thereafter. The basic purpose of the respective issue is to enhance the advances book which will be fueled by the additional liquidity raised through the TFC.

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.