PACRA Maintains the Rating of Pakistan Services Limited | Sukuk |Mar-18

Pakistan Services Limited (“PSL or The Company”) has a leading position in the hospitality industry. Under brand name “PC-Pearl Continental Hotels & Resorts” the Company owns and manages 5 hotels in different cities. As part of its diversification strategy towards an asset-light model, the company also operates and manages PC-Hunza under the brand name “PC-Legacy”. During 9MFY23 revenues of PSL recorded ~10.6% growth mainly due to increase in Food and beverages revenue. Margins also showed improvement at all levels and this led to an increase of free cashflows. However, cash flow generation remains inadequate to meet the debt obligations, a situation acknowledged by management and disclosed in the latest published financial statements, highlighting the existence of significant material uncertainty. Previously as per the consent and approval of lenders all long-term loans have been restructured, where principal repayments and along with markup for the quarter ended Mar 23, June 23 & Sep 23 were deferred till Dec 23 and became payable with Dec 23 quarter payment. As of now the company successfully sold one of the identified properties and utilized its proceeds to pay the debt obligations which were due till Dec 23. The Company has formally requested to their lenders for restructuring of remaining long-term loan also, and the negotiations are still under way. March 24 quarter payment is now also due, and the management expects to pay it from internal cashflows before the end Jun 24. As of Dec-23, outstanding principal amount related to Sukuk was PKR ~ 5.7bn of which PKR ~1.2bn principal amount was paid by the Company subsequently that is disclosed in financial statements of March-24 and now total outstanding amount of principal after repayment stands at PKR ~4.47bn. The Company is actively seeking a suitable buyer for the under-construction PC Multan which is classified under asset held for sale, but has not yet made substantial progress. The Financial risk profile of the Company is characterized by weak coverages.
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 1,702 rooms. Mr. Sadruddin Hashwani is the Chairman of the board. Subsequent the period end March 24, Mr. Murtaza Hashwani resigned from the position of CEO and Mr. Bastien Paul appointed as the CEO by BoDs. He has more than two decades of experience within hospitality industry.

About the Instrument
PSL issued an unlisted, secured, long-term, PP Sukuk amounting to PKR 7,000mln. Deferred payment of Dec-23 including interest and principal amounting to PKR ~2.6bn has been paid by Company that is disclosed in financial statements of March 30, 2024. However, March-24 (quarter) payment of PKR ~625mln (principal and interest) is pending which management has represented that will be paid before end of June-24. The instrument is secured by an Equitable mortgage on land & building of PC - Lahore with 25% margin.