credit rating agencies in pakistan

7/31/2019 Credit Rating Agencies in Pakistan

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Submitted By:

Haider Ahmed Qazi SP09-BBA-095

1/10/2012

Comsats Institute of Information and Technology

Assignment No 3

Pakistan credit rating agency
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What is PACRA?

PACRA stand for Pakistan Credit Rating Agency. The primary function of PACRA is to

evaluate the capacity and willingness of a corporate entity to honor its debt obligations. PACRA

ratings reflect an independent, professional and impartial assessment of the credit risk associated

with a particular debt instrument or a corporate entity. By providing a measurement of risk,

PACRA's ratings facilitate investors in making prudent investment decisions after determining

the acceptable rate of return at the given risk level. However, regardless of the type of rating, it 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.

PACRA was established in 1994 as a joint venture among IBCA Limited (the international credit

rating agency), International Finance Corporation (IFC) and the Lahore Stock Exchange. The

first credit rating agency in Pakistan, PACRA is widely acknowledged for its professionalism

and integrity. To date, PACRA has completed well over a hundred ratings, including major

industrial corporate, financial institutions and debt instruments. In addition to local ratings,

PACRA has also successfully completed two international rating assignments in collaboration

with Fitch. PACRA is geared to provide a full range of credit rating services. This includes the

rating of corporate entities and fixed income instruments. The ownership and management

structure of PACRA ensures complete independence from any direct or indirect control of theGovernment, any private sector business group or financial institution. A rating assigned by the

rating committee, which includes senior management of PACRA, reflects PACRA's objectively

formed opinion of credit risk. Other rating reviews carried out by PACRA include Financial

Strength ratings of modarabas, Mutual Fund ratings and Insurer Financial Strength (IFS) ratings

for insurance companies. Another credit rating agency working in Pakistan is JCR-VIS Credit

Rating Co. LTD it also do rating similar to PACRA along it also do currency ratings. VIS is a

credit rating company which is now working with JCR and they combine doing ratings. There

rating processes end in almost 8 weeks. Companies pay the credit rating agencies for doing their

ratings.


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PACRA rating Methodologies

There is mostly similar method but different factors through which rating is being done for

various sectors and industries. There is a bank rating methodology, corporate rating

methodology, insurance rating methodology, structured finance rating methodologies, Asset

manager rating methodology, mutual fund rating methodology, real estate grading methodology

different elements which are checked mostly are industry risk , market position, Ownership and

support, earning and performance, cash flow, management evaluation, capital and debt structure,

funding and flexibility, corporate governance and other risk factors are checked before assigning

a rating scale to the companies. PACRA rating scale is told as below.

RATING SCALE OF (PACRA)

LONG TERM RATING SHORT TERM RATING

AAA: Highest credit Quality A1+: Highest Timely repayment

AA: Very high credit quality A1: Strong timely repayment

A: High credit quality A2: Satisfactory timely repayment

BBB: Good credit quality A3: Adequate timely repayment

BB: Speculative B: Susceptible timely repayment

B: Highly speculative C: Inadequate timely repayment

CCC, CC, C: High Default risk D: High risk default

RATING PROCESS OF (PACRA)

PACRA rating process begins with a careful review of an entity's published information. From

this review, analysts (normally two, the lead and support analyst, are assigned to each rating


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assignment) determine what additional data are needed and a detailed questionnaire is sent to the

client. An initial rating assessment is made and discussed internally. A discussion agenda is then

prepared for a meeting with the client company's senior management. The meeting is wide-

ranging, covering the company's financial position, earning trends, operating practices,

competitive standing, future prospects, the economic environment and many other issues that can

have a bearing on PACRA's assessment. In order to ensure full understanding of their position,

companies entrust PACRA with confidential information, which is not disclosed in rating reports

but which is certainly taken into account when assigning the ratings.

In determining the initial ratings for an institution, a rating proposal is prepared based on the

information gathered at the Management Meeting with the company, and is presented to the

rating committee (comprising the Chairman, Managing Director, senior executives and the lead

analyst). A draft rating report is then prepared and sent to the client for verification of the

accuracy and confidentiality of the information in the report. Upon the client's approval, the one-

page summary of the report is made public and a press release of the assigned rating is issued.

The detailed rating report is sent to the client.Rating Watch: As and when any significantchanges take place, the existing rating is placed on Rating Watch'. The rating is then upgraded,

downgraded or maintained after assessing the impact of any such change

Rating of five Companies of Pakistan

Companies Date Long term rating short term Rating

Fazal Cloth Mills Limited 24-Aug-11 A- A2

Hussain Mills Limited 30-Jan-12 A- A2

Ibrahim Fibers Limited 05-Jul-11 AA- A1+

Nishat Mills Limited 23-Feb-11 AA- A1+

Prosperity Weaving Mills Ltd 30-Nov-11 A- A2

Sapphire Fibers Limited 26-May-11 A A2

credit rating agencies in pakistan

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