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The Pakistan Credit Rating Agency Limited

Date
26-Oct-2017
Analysts
Rai Umar Zafar
rai.umar@pacra.com

Muhammad Hassan
muhammad.hassan@pacra.com

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

  • Sukuk Rating Methodology (Jun 17) [View]
  • Corporate Rating Methodology (Jul 17) [View]

Related Research

  • Sector Study | Hotels & Retail Industry (Mar 17) [View]
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PACRA Assigns Preliminary Rating to Proposed Sukuk of Pakistan Services Limited
 Rating Type Debt Instrument
Current
(26-Oct-2017)
 Action Preliminary
 Long Term AA-
 Short Term -
 Outlook Stable
 Rating Watch -

Pakistan Services Limited (PSL) is the owner and operator of Pearl Continental (PC) Hotels in Pakistan. PC is the premium five star hotel chain of the country. The rating reflects the leading position of the PC brand in the domestic market alongwith a diversified geographical presence of PSL providing competitive edge over other players. PSL currently has presence in six major cities. The rating also incorporates the association of PSL with the Hashoo group – market leader in the domestic hospitality market with over 2500 rooms in 20 properties. To solidify its market position, PSL is constructing five star hotels in Multan & Mirpur, later will be partially financed through this Sukuk. PSL has observed continuous growth in occupancies and ADRs – facet of improved security situation and increased economic activity in the country. PC – Lahore is the biggest hotel with 607 rooms contributing ~45% of the overall revenue stream. The profitability trend also observed improvement. The company currently has a low leveraged capital structure but debt driven expansions would increase the company’s leveraging though remaining at a comfortable level. PSL intends to maintain a debt payment account for servicing its financial obligations. To ensure liquidity cushion the company plans to maintain a cushion in its short term lines equivalent to the upcoming installment amount, which further provides comfort to the ratings.

In order to capitalize on the increasing demand in the hospitality sector, PSL targets sizeable investments in expansion and development of new properties in both high-end and mid-tier segments. The company also plans to enter into the real estate housing and mega mall projects through its subsidiaries. Management of coverages amidst rising debt levels would remain crucial. Timely completion of under construction properties improving the cashflow stream would provide support to the coverages.
About the Entity
Pakistan Services Limited was established in 1958 and it is quoted on Pakistan Stock Exchange. It owns and operates chain of hotels and resorts under the brand name Pearl Continental Hotels – largest hotel chain of the country with 1,526 rooms. Hashoo Group directly & through its affiliates has 89.15% control of the company. Hashoo group is one of the leading business conglomerate of Pakistan with significant presence in Hospitality, Oil & Gas and other sectors.

Pakistan Services Limited has a nine member BoD, out of which eight are nominated by Hashoo Group and it has one independent member. Mr. Sadruddin Hashwani – founder of the Hashoo Group – chairs the board. He has experience of over 5 decades of managing different businesses. Mr. Murtaza Hashwani is the Chief Executive Officer of the company. He is assisted by an able team of experienced professionals.

About the Instrument
PSL is in the process of issuing a privately placed, secured Sukuk of PKR 7bln (inclusive of PKR 2bln green shoe option). Tenor of the Sukuk will be 6 years with initial 1.5 years as grace period. The issue has profit (6MK+1%) payable semiannually in arrears. The Sukuk’s principal repayment will start after 18th month of issue date in 9 semi-annual installments. The instrument is secured by Equitable mortgage on land & building of PC - Lahore.
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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