May 2, 2019 (MLN): Pakistan Credit Rating Agency (PACRA) has maintained long-term stability ratings of AKD Cash Fund, AKD Aggressive Income and AKD Islamic Income Fund at “AA+(f)”, “A-(f)” and “A+(f) respectively, with a 'Stable' outlook forecast.
The rating reflects the fund's moderate credit risk profile emanating from its investment strategy to invest in good credit quality investment avenues with sound liquidity.
At end-Dec 18, the AKD Aggressive Income Fund has cash exposure with banks ~43% with the majority of the exposure in ‘A’ and above rated banks. The fund's exposure towards TFCs/Sukuk represents ~38% with TFC of the bank rated 'A-'and 'AA-'.
The unit holding pattern of the fund is highly concentrated with top 10 investors (i.e. ~96%) exposing the fund to a high level of redemption pressure. The assigned rating takes into account the fund's overall risk appetite which exposes the fund towards a medium level of risk.
Going forward, the fund will invest in debt instruments with a rating not less than A-. Material changes in the fund's asset allocation strategy, which could negatively impact the fund's credit quality and exposure to interest rate risk, remains critical for the rating.
On the other hand, AKD Islamic Income Fund's exposure with sukuks is ~27%, while~ 71% of the fund's assets are exposed towards banking deposits with banks rated 'A+' and above.
The unit holding pattern of the fund is concentrated with top 10 investors representing ~ 80% of the fund's total asset which exposes the fund to a high level of redemption risk.
Going forward, the fund intends to maintain its allocation towards the same investment avenues.
Meanwhile, AKD Cash Fund's portfolio, at the end of Dec-18, comprises T-Bills ~72% and cash balances ~13%. Fund's portfolio duration of 42 days results in low exposure towards interest rate volatility.
The unit holding pattern of the fund is concentrated with the top10 investors representing ~74% of the portfolio, however, fund has mitigated the redemption risk by staying highly liquid in cash and T-Bills.
Going forward, the rating remains dependent on maintaining at least 50% allocation towards government securities or AA+ exposure with portfolio duration not exceeding 60 days. Meanwhile, the remaining assets of the fund must be placed with the scheduled banks having credit ratings of 'AA' and above.
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