Lahore, August 29, 2018 (PPI-OT): The entity ratings takes into account the sponsor’s firm commitment to maintain the company’s equity in case of erosion and/or to meet any capital call arising from underwriting commitments through injection of funds in a timely manner. The ratings take into account the steps taken by the management to fortify risk management framework through establishment of board level committees and segregating risk and compliance function. The corporate governance framework is adequate and the company plans to induct an independent director on the board in 2HCY18.
The company’s revenue stream comprises brokerage income, underwriting business, and net gain from the proprietary trading. The trading in proprietary book creates perception of conflict of interest and there could be high variation in earnings linked to the volatility of the stock market. This risk is mitigated to a certain extent by structured investment policy of the company and limits on proprietary book in relation to the equity (upto 25% of equity) of the company. The equity base of the company has been growing due to accumulation of profits, which provides cushion against losses. The company has adequate capitalization levels with net capital balance of PKR204mln at end June 18.
The rating is dependent on sustainability of profitability through core activities of brokerage and underwriting. The majority of revenue emanates from HNWIs but the management has devised a suitable plan to increase its focus towards local institutional clients. Upholding strong internal controls and diligent monitoring of risks is critical. Erosion in equity base due to losses that is not timely replenished as committed by the sponsor will result in downgrade. Adherence to agreed parameters regarding investment policy and underwriting commitments is crucial.
For more information, contact:
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Category: General Business News