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The Pakistan Credit Rating Agency Limited

Date
05-Apr-2017
Analysts
Jhangeer Hanif
jhangeer@pacra.com

Saliha Sajid
saliha.sajid@pacra.com

+92-42-35869504
www.pacra.com
Applicable Criteria

  • Rating Modifiers | Outlook and Rating Watch (Jun 16) [View]
  • Correlation between Long-term and Short-term rating (Jun 16) [View]
  • Methodology | Non-Banking Finance Companies (Jan 17) [View]

Related Research

  • Sector Study | Modaraba & NBFCs (Mar 17) [View]
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PACRA places Entity Ratings of Escorts Investment Bank Limited on Rating Watch
 Rating Type Entity
Current
(05-Apr-2017-)
Previous
(14-Nov-2016)
 Action Maintain Downgrade
 Long Term BB BB
 Short Term B B
 Outlook Developing Negative
 Rating Watch RatingWatch -

In a recent development, Bahria Town (Private) Limited has shown interest in acquiring controlling stake in Escorts Investment Bank. Legal process has been initiated. Key steps include signing of firm share purchase agreement between parties, tender offer to remaining shareholders, and relevant regulatory approvals (particularly from SECP). Notably, both parties intend to complete the transaction in a favorable and timely manner. It is expected to conclude within six months.
On a standalone basis, Escorts Investment Bank has a stressed profile. It has a sizable portion of non-earning assets that has significantly limited its ability to stay profitable. Although over the recent years, the management has taken different initiatives to nurture performance, success has been limited. The bank has sizable liquid to near liquid assets, but these are barely sufficient to match its deposits. In this scenario efforts to realize non-earning assets, managing the deposit calls, and holding on the liquidity remains critical. (A favorable conclusion of this transaction is important for otherwise distressed profile of the Investment Bank).

Noting the expected change in ownership and related acquisition process, PACRA has placed the ratings of Escorts Bank on rating watch. PACRA would monitor the related developments. Rating would be reviewed once the clarity as to the new ownership structure and pursuant strategy is achieved.

About the Entity
The acquirer, Bahria Town (Private) Limited, is a privately owned real-estate development company which owns, develops, and manages properties across Pakistan. It is the leading private real estate company in the country. The CEO of the company is Mr. Malik Riaz Hussain. Major shareholding of the company and the chairman of the board Mr. Ahmed Ali Riaz Malik, son of Mr. Malik Riaz.

The target company, Escorts Investment Bank Limited (EIBL) incorporated in 1996, is listed on Pakistan Stock Exchange. EIBL has a head office and two branches network in metropolitan cities. EIBL is majority owned by the Escort group (71%), directly by individuals and through ESSEM Power (Private) Limited. EIBL’s board of directors (BoD) comprises seven members. Except the CEO all others are non-executive. Ms. Shazia Bashir, the CEO of EIBL, is at current position since April, 2010. She has a long association with the bank, in different strategic roles, since its inception.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.
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