Press Release

JCR-VIS Assigns Preliminary Rating of ‘AA’ to the Proposed PPTFC of Avari Hotels (Pvt.) Limited
 

Karachi, September 17, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned preliminary medium to long term rating of ‘AA’ (Double A) to the proposed Privately Placed Term Finance Certificates (PPTFC) issue of Rs. 4.6b of AHL. The assigned rating signifies high credit quality with strong protection factors. Risk on the instrument is considered moderate but may vary slightly from time to time because of economic conditions. Outlook on the rating is ‘Stable’.

AHL plans to acquire a PPTFC amounting to Rs. 4.6b for partially expanding its properties while the remaining proportion will be utilized for retiring existing debt on the books. This loan will be present on the books of AHL while it will be completely serviced by one of AHL’s largest existing tenant, Unilever Pakistan Limited (Unilever), one of the largest FMCG operating in Pakistan for a number of decades with last reported turnover of Rs. 86.3b and net profit of Rs. 13.2b. Unilever’s parent company, Unilever PLC, carries an international long term rating of ‘A+’ by Fitch. Unilever has been a tenant of AHL for 35 years. The facility, agreed upon by AHL and Unilever, is structured as an advance discounting of the lease rental agreement for nine years. The security structure is tripartite [lenders, AHL and Unilever] with Unilever giving an undertaking to pay principal and markup payment on the PPTFC against rent payable in lieu of advance rent they would have ordinarily paid. The facility is additionally secured by a charge on assets of AHL.

While the debt will be present on AHL’s books, Unilever through irrevocable instructions to its banker will make principal and markup payment on the PPTFC into an account with the agent bank. Rental income from other clients is expected to provide adequate cushion for repayment of other existing debt. Current rating of the instrument entirely depends upon financial strength of Unilever and the lease agreement between AHL and Unilever; any changes in profile of the lessee would have an impact on the same.

The four to five star hotel industries in Pakistan is concentrated in a few hotels with strong demand correlation with the economic and business activity. As per management, the improving law and order situation in the country along with recovery in the economy will positively impact the high-end hotel industry of Pakistan. In view of this stance, AHL is concerting efforts by increasing presence in main cities of Pakistan.

For further information on this rating announcement, please contact the undersigned (Ext: 201) at 35311861-70 or fax to 35311872-3.

Javed Callea
Advisor

Applicable Rating Criteria: Industrial Corporates (May 2016)
http://www.jcrvis.com.pk/kc-meth.aspx

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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 2018 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