The Pakistan Credit Rating Agency Limited
Press Release


Muhammad Atif Chaudhry

Applicable Criteria

Related Research

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 Revises the Rating of Pakistan Services Limited | Sukuk | Mar-18

Rating Type Debt Instrument
(25-Jul-23 )
(15-Mar-23 )
Action Downgrade Downgrade
Long Term BBB A-
Short Term - -
Outlook Negative Negative
Rating Watch Yes Yes

Pakistan Services Limited’s (The Company) has a leading position in the hospitality industry. Ever since the pandemic Covid-19, the hotel sector has been under pressure. Furthermore, the slowdown in domestic activity, coupled with hyperinflation, low foreign reserves, a depreciating currency and a high-interest rate environment impacted the sector's performance. Given the above facts, the operational cashflows did not improve to make repayments. In full cognizance of the situation, the Company was pursuing a sale plan of its fixed assets, primarily properties. The management was hopeful to complete the sale transaction however, were not able to dispose of some big assets as targeted. Over the last couple of months, the management started to face material uncertainty around the company's operations, as disclosed in the recently published financial statements for six months ended on 31st Dec'22. This led to the revision and adjustment of ratings on 15-Mar-23. Thereafter, the management has represented that they have expressed intention to settle the debt while aligning the financial obligations with the operational realities and successfully managed to repay a principal and interest which was due on 31st Dec'22.
In continuation of the management's efforts, on Jun'23 as per the consent of the lenders, all long-term loans have been restructured where principal repayments along with markup due at end Mar'23, Jun'23, and Sep'23 are deferred till Dec'23. As per the revised agreements i) The Managing co-owner undertakes that it shall utilize excess cash/EBITDA during the financial year to satisfy the payments obligation on pro-rata basis ii) The Sponsor guaranteed amounting PKR 7.66bln with respect to deferred payments-2023 and iii) The Managing co-owner undertake that any shortfall in the proceeds from the disposal of the sale assets/properties to be disposed off or in the case where the sale assets/properties are not sold off shall be in the first instance be paid by the managing Co-owner from his own resources or procure additional funding from the sponsor and iv) the managing co-owner undertakes to open and maintain an escrow account within 45 days from the date of execution of this second supplemental for pro-rata distribution of proceeds from the disposal of sale assets. Hence the debt obligations falling due in Dec'23 are linked with sale of properties while remaining liabilities will be aligned with the emerging pattern of future cash flows. Rating would remain dependent on the effective implementation of the envisaged strategy.

About the Entity
The Company was established in 1958 and is quoted on the Pakistan Stock Exchange. It owns and operates Pearl Continental Hotels. Mr. Sadruddin Hashwani – founder of the Hashoo Group – is the Chairman of the board. Mr. Murtaza Hashwani acts as the CEO of the Company.

About the Instrument
PSL issued an unlisted, secured, long-term, PP Sukuk amounting to PKR 7,000mln. Under the Regulator’s Relief Package amid COVID-19, the Company availed deferment of the outstanding principal amount of PKR 6.6bln. Consequently, the tenor has been extended to two and a half years. Till Dec'22, seventeen interest payments amounting to ~PKR 2,982mln and principal amounting ~PKR 1,183mln have been paid by the Company. The instrument is secured by an Equitable mortgage on land & building of PC - Lahore with 25% margin.

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.