PACRA Downgrades Entity Ratings of Pakistan Services Limited

Lahore, March 24, 2020 (PPI-OT): The ratings reflect Pakistan Services Limited’s (The Company) leading position in the hospitality industry. Ongoing geopolitical scenario, coupled with slowdown in domestic economic activity, impacted the Company’s revenues and profitability. The situation has exacerbated with recent outbreak of COVID-19 pandemic and following travel restrictions. This is an industry wide phenomenon and has led to lower occupancies and severe pressure on revenues of players. The profitability of the Company is expected to suffer significantly and, despite better performance in 1HFY20, margins are expected to deteriorate on the back of COVID-19 outbreak.

The Company has modest leveraging and a large asset base but higher finance cost and low cashflows have resulted in weak coverages. This trend is expected to continue as cashflows may further deteriorate. The management intends to dispose of some of its properties (real estate assets) to supplement liquidity and meet sizeable upcoming debt repayments. However, material progress is yet to be seen, as buyers are sidelined in current scenario of the industry. Financial support from sponsors remains imperative in the short term.

Ratings are dependent on effective implementation of envisaged strategy to improve cashflows while maintaining modest leveraging and strengthening coverages. Any significant delay in commencement of new projects and/or further deterioration in margins, leading to weak coverages and pressure on liquidity, will have a negative impact on ratings. Meanwhile, maintaining sufficient cushion for debt repayment remains crucial. Support from sponsors is critical.

For more information, contact:
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
Web: www.pacra.com

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