Press Release

JCR-VIS Reaffirms Entity Ratings of Pak China Investment Company Limited at ‘AAA/A-1+’ (Triple A/A-One Plus)

Karachi, June 30, 2017: JCR-VIS Credit Rating Company Limited (JCR-VIS) has re-affirmed the entity ratings of Pak China Investment Company Limited (PCICL) at ‘AAA/A-1+’ (Triple A/A-One Plus). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on June 28, 2016.

The ratings assigned to PCICL take into account implicit support of its two sovereign sponsors, Government of Pakistan (GoP) and People’s Republic of China (PRC), who hold equal stake in the company through Ministry of Finance (MoF) and China Development Bank (CDB), respectively. The ratings also incorporate strong capitalization along with conservative risk appetite of the company and dynamic management.

With higher disbursements, gross advances of PCICL increased by end-1QFY17. Fresh disbursements were made to electronics, energy, food & beverages, cement and engineering sectors; all advances outstanding pertained to the private sector. Asset quality indicators exhibited improvement on a timeline basis; NPLs have been fully provided for. Being cognizant of its role as DFI, the management has embarked upon exploring various avenues by virtue of enhancing focus on infrastructure development in the national strategic interest, private equity operations, microfinance and human capital development along the CPEC route, export oriented sectors and social sectors.

As the company does not possess the mandate to take direct exposure in equities, surplus funds are mainly deployed in government securities; credit risk arising from the same is considered minimal in the local context. Market risk of the investment portfolio is also considered manageable given relatively small proportion of PIBs portfolio. During FY16, PCICL took fresh exposure in highly rated unlisted TFCs/Sukuks. Overall, the company maintains adequate provisioning against non-performing investments. The company also made strategic investments in PSX Limited (PSX) and Central Depository Company of Pakistan (CDC) by acquiring 5% stake in both the companies. PCICL played a pivotal role in attracting major Chinese exchanges as investors in PSX. The company’s investments in PSX and CDC are made keeping in perspective its long-term business plans.

As a secondary market borrower, the institution is primarily dependent on funding from other financial institutions; fund mobilization activity under COIs is currently limited. The liquidity profile of the institution draws comfort from the high proportion of equity to assets. Liquid assets to total deposits & borrowings declined on a timeline basis but still remained strong.

Core income decreased mainly on account of lower net mark-up income generated during the outgoing year. However, net non-mark up income augmented mainly on the back of higher capital gain and fee & commission income; bottom line was further supported by lower incidence of taxation during FY16. Functioning of Board is adequate while working of its committees has room for improvement. In the backdrop of forecasted mid-term economic scenario and low lending rates due to excess liquidity, spreads and profitability growth of the financial sector are expected to remain under pressure during 2017.

For further information on this rating announcement, please contact the undersigned (Ext: 201) at 021-35311861-70 (10 lines) or Mr. Maimoon Rasheed at 042-35723411-13 or fax to 021-35311873.

Javed Callea

JCR-VIS Entity Rating Criteria: Government Supported Entities (June 2016)

Information herein was obtained from sources believed to be accurate and reliable; however, JCR-VIS Credit Rating Company Limited (JCR-VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. JCR-VIS, the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report. JCR-VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings. JCR-VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2017 JCR-VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to JCR-VIS.

JCR-VIS Credit Rating Company Limited