The Pakistan Credit Rating Agency Limited
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Kanwal Ejaz

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PACRA Revises Entity Ratings of Pakistan Services Limited

Rating Type Entity
(25-Jul-23 )
(15-Mar-23 )
Action Downgrade Downgrade
Long Term BBB A-
Short Term A3 A2
Outlook Negative Negative
Rating Watch Yes Yes

Pakistan Services Limited (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. However, 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 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 all long-term loans have been restructured as per the consent of the lenders, where principal repayments along with markup for the quarter ended Mar 23, June 23 & Sep 23 deferred till Dec 23. There is no change in the security and pricing structure of these loans. Furthermore, similar restructuring is also approved by the concerned parties in the first supplemental Musharaka Agreement related to PP Sukuk PKR 7,000mln. Debt obligations which will be due on Dec 23 are now linked with the sale transaction of properties while remaining liabilities will be aligned to the emerging pattern of future cashflows.
During 9MFY23 the topline of the Company depicted ~17% growth and stood at PKR 10,509mln, gross margin sustained at 41%, while net profit margin posted little dilution. The Financial risk profile of the Company is characterized by weak coverages and insufficient cashflows.
Ratings are dependent on effective implementation of envisaged strategy, maintaining sufficient cushion for debt repayment and sponsor's support remains crucial. Outlook on the entity is negative while rating watch is maintained. Removal of material uncertainty related to going concern as documented by the external auditors is important.

About the Entity
Pakistan Services Limited was established in 1958 and is quoted on the Pakistan Stock Exchange. It owns and operates Pearl Continental Hotels – the largest hotel chain of the country with 1,394 rooms. The Company has a nine-member BoD, with three independent members. Mr. Sadruddin Hashwani – founder of the Hashoo Group – is the Chairman of the board. He has experience of over 5 decades of managing different businesses. Mr. Murtaza Hashwani acts as the Chief Executive Officer of the Company.

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.