Press Release

VIS Reaffirms Entity Ratings of Sindh Modaraba

Karachi, June 30, 2020: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Sindh Modaraba (SM) at ‘A+/A-1’ (Single A Plus/A-One). The long term rating of ‘A+’ signifies good credit quality with adequate protection factors. Risk may vary slightly from time to time because of economic conditions. Short term rating of ‘A-1’ depicts high certainty of timely payment where liquidity factors are excellent and supported by good fundamental protection factors. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on February 22, 2019.

The assigned ratings of Sindh Modaraba (SM) derive strength from its indirect ownership by the Government of Sindh (GoS) through Sindh Modaraba Management Limited (SMML). Strong sponsor support has been demonstrated through both financial and technical assistance. The assigned ratings also incorporate satisfactory corporate governance framework, improving profitability indicators, and healthy capitalization indicators and liquidity profile.

Financing portfolio witnessed sizeable growth in 9M’FY20 vis-à-vis the corresponding period in the previous year primarily on account of acquisition of new clients. Concentration in portfolio remains due to selective disbursement strategy. Asset quality indicators are sound given the management’s focus on maintaining a clean portfolio. However, the impact of COVID-19 on the economy would make operating dynamics of the modarabas challenging going forward. Regulatory relief measure granted by SECP to allow for delay of principal payment for one year to clients is expected to delay the impact of prevailing headwinds on portfolio asset quality indicators. However, exposure of SM to credit risk may be elevated due to significant impact of COVID-19 on already weak macroeconomic indicators. Given the economic slowdown and potential adverse impact on borrowers’ repayment capacity due to COVID-19, management will be targeting cautious growth in financing portfolio going forward. Maintaining asset quality indicators in line with the ratings benchmark is considered important from ratings perspective.

Capitalization indicators of SM are considered sound as the company has not mobilized any interest bearing debt. Equity base was further enhanced during FY20 though acquisition of an additional interest free loan of Rs. 500m from SMML, which is repayable at the discretion of SM. Liquidity profile of the company is manageable given the sizeable proportion of liquid assets in relation to total liabilities.

With growth in financing portfolio and increasing interest rate scenario, improvement was observed in profitability profile of the company. Efficiency ratio has also remained at manageable levels for the company over the years. However, it is expected that the impact of curtailment of economic activity for a certain period of time, higher business risk in the borrower portfolio and lower lending rate scenario may impact profitability indicators going forward. Conservative lending strategy to maintain asset quality and cost efficiencies would be important rating drivers going forward.

For further information on this rating announcement, please contact the undersigned (Ext: 306) or Narendar Shankar Lal (Ext: 203) at 021-35311861-71 or fax to 021-35311872-3.

Faryal Ahmad Faheem
Deputy CEO

Applicable Rating Criteria: Non-Bank Financial Companies (March 2020)

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 2020 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

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