Press Release

JCR-VIS Reaffirms Entity ratings of Arif Habib Limited

Karachi, January 17, 2019: JCR-VIS Credit Rating Company Ltd. has reaffirmed the entity ratings of Arif Habib Limited (AHL) at ‘AA-/A-1’ (Double A Minus/A-One). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on November 24, 2017.

The assigned ratings are underpinned by the sponsors’ profile, with majority shareholding vested with Arif Habib Corporation Limited, the holding company. The sponsor owns significant interests in fertilizers, securities & commodities brokerage, corporate advisory, asset management, cement and steel sectors. Board of directors at AHL includes members with experience in the financial services sector while senior management comprises seasoned professionals. Ratings also reflect healthy growth in market share during FY18, diversified revenue streams and healthy financial risk profile.

AHL remains one of the prominent players in both, equity and corporate advisory domain with a market share of ~9% (based on ready and future value) in equity trading. In line with market trend, profitability depicted decline on account of reduction in equity brokerage and corporate advisory income. Decrease in recurring revenue outpaced reduction in expenses (expenses included investment in human capital to enhance market share), as a result, efficiency ratio of the company weakened. During the review period, the company has focused on growth in business from high net worth individuals and institutions through strengthening of human resources, sales team reorganization, branch expansion and relationship management.

Size of proprietary book was reduced in FY18 and ongoing fiscal year. Conversely, the company made sizeable investment in property. With large direct exposure to equity market, market risk is considered to be on the higher side. A major chunk of the investment portfolio pertains to investment in group companies and proprietary investments with around one-tenth of the portfolio comprising ready future transactions. Liquidity profile draws further support from the understanding given to us that, as and when required, AHL has firm commitment from its sponsoring company to buy back strategic investment from AHL’s short term investment portfolio.

In order to manage balance sheet risk, there are limits in place for leverage, underwriting and proprietary equity investments. Going forward, ratings would be dependent upon such functional framework being present.

For further information on this rating announcement, please contact the undersigned (Ext: 201) or Mr. Jamal Abbas Zaidi (Ext: 207) at (021)35311861-71 or fax to (021)35311872-3.

Javed Callea

Applicable Rating Criteria: Methodology - Securities Firms Rating (May 2015)

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 2019 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