PACRA assigns entity ratings to GuarantCo Limited
The Pakistan Credit Rating Agency Limited (PACRA) has assigned a long-term entity rating of 'AAA' (Triple A) and short-term rating of 'A1+' (A One Plus) to GuarantCo Limited (GuarantCo).
These ratings denote the lowest expectation of credit risk emanating from an exceptionally strong capacity for timely payment of financial commitments.
GuarantCo Limited, an international development financial institution, part of the Private Infrastructure Development Group (PIDG), is directly and indirectly owned by four highly rated European sovereigns. GuarantCo is mandated to operate in low-income countries. Its objective is to facilitate flow of debt capital to projects having bearing on infrastructure by offering credit guarantees.
It is cautiously building its guarantee portfolio with adequate emphasis on diversification – geographical, entity, and sector. There has been relatively high impairment (~14%) in the quality of guarantee assets. However, given the small size and short age of the portfolio, this might not be reflective of otherwise detailed and robust credit evaluation and monitoring framework.
This is being achieved through an experienced manager and a seasoned board. The company maintains good provision coverage. Meanwhile, the sponsors through PIDG and FMO gradually injected fresh funds to keep the company equipped with robust capitalization. A healthy investment portfolio – mainly comprising fixed income corporate bonds and US Treasury – is funded by its equity.
Thus liquidity stayed strong along with sizable income stream. However, the performance of the company remained subdued mainly owing to its small size as operating expenses and provisioning cuts were high. The management, over the near-term, is pursuing a well-conceived strategy to achieve profitability. Nevertheless, the management’s success in achieving its business objectives while capitalizing on its identified niche – infrastructure development – remains to be seen.
GuarantCo’s ratings are dependent on its robust ownership structure, well-supported by implicit – indeed demonstrated – support by the sponsors. The company’s ability to achieve desired growth in its guarantee portfolio is important to pull off from bottom-line losses. Meanwhile, close monitoring of asset quality remains critical.
About the Company:
GuarantCo Limited was incorporated in August 2005. The company has executed thirty projects with exposure in fourteen countries to date. The ultimate ownership of GuarantCo lies with four governments – three of which (United Kingdom, Sweden, and Switzerland) own through Private Infrastructure Development Group (PIDG), and the Netherlands maintains its stake through FMO (Dutch Development Bank).
GuarantCo’s seven-member BoD comprises all non executive directors who are qualified professionals with emerging and frontier market experience. Mr. Andrew Bainbridge, the chairman of GuarantCo currently holds the position of Group Head-US Supervisory Remediation at Standard Chartered Bank and has been the chairman since Mar-13. The company’s management has been outsourced to Frontier Markets Fund Managers Limited (FMFM) which is responsible for all commercial operations of GuarantCo.