Press Release

JCR-VIS Revises Entity Ratings of Pearl Securities Limited

Karachi, December 06, 2018: JCR-VIS Credit Rating Company Limited has revised the entity ratings of Pearl Securities Limited (PSL) from ‘BBB/A-3’ (Triple B/A-Three) to ‘BBB-/A-3’ (Triple B Minus/A-Three). Outlook on the assigned ratings continues to remain ‘Negative’. Previous rating action was announced on August 31, 2017.

The ratings take into account the sponsors’ profile, with major shareholding vested with General Provident and Investment (GPI) Fund established by Government of Khyber Pakhtunkhwa; the fund holds 39% stake in the company. However, ratings are constrained by the deterioration in the financial profile of the company on account of decline in profitability and weak efficiency and capitalization indicators.

During the period under review, turnover was observed in the senior management team. Strengthening of management team is required to provide strategic direction to the company. Proprietary book of the company witnessed sizeable reduction at end-October 2018 vis-à-vis FY17 on account of decrease in market value of scrips in view of downturn witnessed in market and management’s strategy to reduce the size of the book. Despite reduction from previous year, proprietary book in relation to company’s equity remained sizeable, thereby signifying considerable exposure to market risk. Furthermore, proprietary book continues to feature sizeable concentration as shares of two listed companies accounted for approximately three fourth of the total proprietary book.

Trade debts demonstrated adequate decrease at end-October 2018 vis-à-vis FY17; however the same feature considerable concentration. Receivable management is critical to limit exposure to credit risk. Overall earnings of PSL witnessed decline on account of reduction in brokerage income due to downturn in market volumes. Going forward, management plans to increase its share of advisory income to enhance revenues.

Total liquid assets witnessed sizeable decrease due to reduction in market value of short term investments. Quantum of short term borrowings has also reduced with decrease in trade debts. However, liquid assets in relation to total liabilities have decreased considerably. Equity base of the company deteriorated due to erosion in value of investments. Higher decrease in borrowings in relation to the decrease in equity resulted in improvement in adjusted gearing and leverage ratios at end-October 2018 vis-à-vis FY17. However, leverage indicators, at current levels, still pose a risk to financial profile of the company. Management is undertaking efforts to reduce the leverage indicators going forward, which will be tracked by JCR-VIS.

For further information on this rating announcement, please contact Mr. Narendar Shankar Lal (Ext: 203) or Mr. Jamal Abbas Zaidi (Ext: 207) at (021) 35311861-70 (10 lines) or fax to (021) 35311873.

Javed Callea

Applicable rating criteria: Methodology - Securities Firms Rating (June 2017)

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited 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.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.VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings.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 VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS.

JCR-VIS Credit Rating Company Limited