PACRA maintains Negative outlook on entity ratings of Pakistan Services Limited

March 26, 2021: Pakistan Credit Rating Agency (PACRA has maintained entity ratings of Pakistan Services Limited at A for long-term and A1 for short-term. Outlook on the assigned ratings remained negative.

As per the rating agency, Pakistan Services Limited has a leading position in the hospitality industry. The hospitality and tourism industry was affected due to the outbreak of Covid-19 with associated lockdown and travel restrictions around the globe. The pandemic situation is still underway as the third wave is around reflecting uncertainty in the industry.

Overall hotels and hospitality industry dynamics started improvement, restrictions were softened, and economic activity resumed. The hotel industry is allowed to operate under specific SOPs, which led the Company to achieve limited profitability in 2QFY21 and came back to operating profit level at the half-year close. Challenges persist like low occupancy rate and reduction in the average daily room rate.

As a response to address the challenges, the Company managed to achieve alignment of its cash flows and payables by deferring long-term debt which will eventually ease out liquidity pressure for near future. Furthermore, management's decision to dispose of non-core assets will supplement the future liquidity position.

The capital structure of the Company reflects leveraging with a large asset base but on the other hand, coverages are weak due to lower cash flows and higher debt servicing cost. The alignment of long-term loans is alleviating this pressure. Financial support from sponsors remains imperative.

Ratings are dependent on the effective implementation of an 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 coupled with a low occupancy rate leading to weak coverages and pressure on liquidity will have a negative impact on ratings.

Meanwhile, maintaining a sufficient cushion for debt repayment remains crucial. Outlook on the entity is negative while rating watch maintained. In this respect, removal of a material uncertainty related to going concerned as documented by the external auditors is important.

PACRA