Karachi, April 03, 2017: JCR-VIS Credit Rating Company Ltd. (JCR-VIS) has reaffirmed entity ratings of Adam Securities Limited (ASL) at ‘BB/A-3’ (Double B/A-Three). Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on December 30, 2015.
Current ratings reflect sizeable market share of ASL in terms of volumetric turnover of the local bourse and improvement in profitability. However, ratings are limited by weaknesses exhibited by the company with respect to governance and control infrastructure.
During the outgoing year, the company has changed its status from private limited company to public unlisted company. Internal control framework at ASL exhibits considerable room for improvement. External auditor of ASL is included in category “B” of SBP panel of auditors. Scope of internal audit is also restricted; some core operational processes are subjected to audit checks. In line with best practices regarding corporate governance, the company needs to develop and adhere to a comprehensive policy framework.
Improvement in profitability was achieved on the back of higher commission rates charged to retail clients. However, further room for growth in profitability exists as high market share is still not being fully reflected in the top line of the company. Sponsors of the company have further depicted commitment by injecting additional capital into the company in the form of subordinated interest free loan; the same is the major factor behind improvement in capitalization indicators along with minimal support from internally generated capital.
We have been given to understand that the company is fully compliant with the corporate governance directives issued by the regulator with regards to the brokers. Going forward, the management intends to enhance profitability by catering to international clients. However, caution must be exercised with respect to leverage indicators and compliance with regulatory guidelines must be ensured at all times.
For further information on this rating announcement, please contact the undersigned (Ext: 207) or Mr. Javed Callea (Ext: 201) at (021)35311861-70 or fax to (021)35311872-3.
Jamal Abbas Zaidi
Applicable Rating Criteria: Methodology - Securities Firms Rating (May 2015) http://www.jcrvis.com.pk/Images/Securities%20methodology%201%20-2015.pdf
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