NISHAT HOTELS & PROPERTIES LIMITED

Transcription

1 The Pakistan Credit Rating Agency Limited NISHAT HOTELS & PROPERTIES LIMITED INITIAL [DEC-14] REPORT CONTENTS 1. RATING ANALYSES Long-Term A- 2. FINANCIAL INFORMATION Short-Term A2 3. RATING SCALE Outlook Stable 4. REGULATORY AND SUPPLEMENTARY DISCLOSURE DECEMBER 2014

2 HOSPITALITY The Pakistan Credit Rating Agency Limited RATING ANALYSES (DECEMBER 2014) NISHAT HOTELS & PROPERTIES LIMITED (NHPL) RATING RATIONALE Nishat Group, through NHPL, is setting up Nishat Emporium comprising a state of art shopping mall, a luxury hotel, and banquet halls. The ratings reflect demonstrated ability and willingness of the group to timely complete and efficiently launch the project. NHPL would follow a develop, maintain, and lease-out rental model as against prevailing develop and sell model for malls in Pakistan. Similarly, it would be managing hotel and banquet facilities itself. The construction work is at an advance stage planned to be delivered to customers within second half of 2015 to achieve targeted launch in early Emporium, while primarily catering to the demand from sprawling population in the neighbourhood, would also attract footfall from other parts of Lahore and neighbouring cities for being first such facility. Notably, more than three-fourth of the mall has been leased with some advance rent already with NHPL. This demonstrates confidence of tenants - all being actual business operators. The project is being funded with a mix of debt and equity with debt being around 55%. However, the volumes of already secured rentals adequately cover the debt repayment. Flow of income from banquets and hotel would provide further support to NHPL's cash flows, in turn, its coverages. KEY RATING DRIVERS The rating remains dependent on timely commissioning of the project without major cost over-runs. Given sizeable leveraging, the financial risk profile of the company must be effectively managed. While the group has the advantage of managing hotel business, the company needs to develop the requisite skill-set for managing the complex. The company is fulfilling HR needs according to life stage of the project. Here, assembling right set of individuals is critical. Ownership: NHPL is part of the Nishat Group. The Group collectively owns majority (90%) of shares of the company through various family members. With an asset base of over US$ 5bln, Nishat Group is one of the distinguished business groups in Pakistan. The emergence of Nishat Group as a conglomerate spans over fifty years with interests in textile, cement, power, dairy, hotel, and financial sectors. Governance & Management: NHPL's seven members board of directors (BoD) is dominated by Nishat Group. The board comprises four representatives of the sponsoring family alongwith three executives from group companies. The CEO of NHPL, Mr. Hasan Mansha, is also the CEO of Nishat Power Limited. He is supported by a team of qualified individuals. Industry: With the dawn of modern shopping malls, trends are witnessing a gradual shift away from small street corner plazas to mega city centers. Malls like Dolmen in Karachi and The Centaurus in Islamabad towering the skyline of the city have paved way for this trend. After the commissioning of Fortress Square in Lahore in 2014, the city tasted its first mega mall, though still not on the scale of the aforementioned grandeurs. Initiatives are being taken by various groups to capture the room available for growth in the mall management in the city. One such example is the upcoming project by Nishat Group in the under construction Financial Trade Centre Lahore, a mega project undertaken by Lahore Development authority. Hotel industry in Lahore is largely dominated by names like Pearl Continental and Avari. Other names are building their own space based on niche marketing The Project: Sprawled across an area of 15 acres, the Project comprises nine storey five star hotel with 150 rooms, a shopping mall of 140 shops, a food court catering 30 international chains, a multiplex cinema of 9 screens, 10 banquet halls with a combined capacity of 5,000 people and a parking space of 2,500 cars; the project will be first of its kind in the city. With the support of local and international contractors like Izhar Construction, Guarantee Engineers and Aedas Architects, the Project is in its final stages and is expected to commence its operations by end-15. The Revenues: Based on the demand of retail space in the northern city and a lack of any to cater such, NHPL is eyeing significant revenue stream from the project. Instead of selling the space to investors, NHPL has followed the lease model. ~80% of the shops in the mall have been leased out. 115k sqft have already been leased out for a period of 20 years to Hyper Star, ensuring a stable cashflows for NHPL. Lease is for a tenor from 3 to 10 years. The occupants are expected to pay two years worth of lease rentals in advance. With the total mall space of ~592k sqft (including 27k sqft for the multiplex and 87k sqft of food court) and an occupancy rate of 70%, NHPL expects revenue of PKR 1.4bln in the first year of its operations. At an occupancy rate of 60% and average charges of PKR 12k per night, the hotel is expected to generate ~PKR 263mln of cash inflows in the first year of operations from its rooms. Other major components of the revenue are income generated from the banquet halls, parking lot and service charges. The Management: NHPL will be the sole manager of the project. Given the ongoing construction of the project, mainly technical team is in place. The company intends to induct a mall management team (~200 permanent employees and 100 contractual) over the coming months. The group has hotel management experience; though, its ability to manage a complex mall will be tested. Cashflows & Coverages: With advance receipt of rent, supplemented by hotel and banquet business, NHPL retains the ability to adequately pay the debt plus finance cost. Capital Structure: At an estimated cost of PKR 15bln, the project is financed by a mix of debt (60%) and equity (40%). A syndicated facility from a consortium of banks led by Askari Bank Limited representing PKR 8bln at KIBOR + 1.5% has been obtained. The repayment will commence two years (2018) after the commissioning (2016) and the facility will be fully paid within five years. Remainder of the cost is being financed by equity injected by the Nishat Group. NISHAT HOTELS & PROPERTIES LIMITED (NHPL) December 2014

3 \ The Pakistan Credit Rating Agency Limited NISHAT HOTELS & PROPERTIES LIMITED HOSPITALITY Financial Information PKR mln BALANCE SHEET 30-Jun Jun Jun-12 Annual Annual Annual Non-Current Assets 6,757 2,636 1,365 Investments Current Assets Total Assets 7,300 2,860 1,376 Borrowings 1, Total Liabilities (Excluding Borrowings) Shareholders' Equity 5,527 2,764 1,374 Total Liabilities & Equity 7,300 2,860 1,376 PROFIT & LOSS ACCOUNT 30-Jun Jun Jun-12 Turnover Gross Profit Administrative Costs (41) (37) (14) Other Income Net Income (38) (9) 18 CASHFLOW STATEMENT 30-Jun Jun Jun-12 EBITDA (39) Free Cashflow from Operations 18 (104) 24 Net Cash provided by Operating Activities (114) (22) 27 Net Cash Available from Investing Activities (4,093) (2,625) (225) Cashflow from Financing Activities 4,335 2, RATIO ANALYSIS 30-Jun Jun Jun-12 Gross Margin Return on Equity -1% 0% 3% Debt Service Coverage (times) 42 (1) 630 Net Cash Cycle (Days) Capital Structure (Debt : Equity) 22% - - NISHAT HOTELS & PROPERTIES LIMITED (NHPL) December-14

4 Regulatory and Supplementary Disclosure Rated Entity Name of Rated Entity Sector Type of Relationship Purpose of the Rating Nishat Hotels & Properties Limited Hospitality Solicited Independent Risk Assessment Rating History Dissemination Date Long Term Short Term Outlook Action 31-Dec-14 A- A2 Stable Initial Related Criteria and Research Specific Methodology: Corporate Rating Methodology Rating Analysts Muhammad Siddiq Suffiyan Saleem ( ) ( ) Rating Team Statement Disclaimer Probability of Default (PD) Rating is an opinion on relative credit worthiness of an entity or debt instrument. It does not constitute recommendation to buy, hold or sell any security. The rating team for this assignment does not have any beneficial interest, direct or indirect in the rated entity/instrument. PACRA maintains principle of integrity in seeking rating business. PACRA has used due care in preparation of this document. 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5 The Pakistan Credit Rating Agency Limited STANDARD RATING SCALE & DEFINITIONS Credit rating reflects forward-looking opinion on credit worthiness of underlying entity or instrument; more specifically it covers relative ability to honor financial obligations. The primary factor being captured on the rating scale is relative likelihood of default. LONG TERM RATINGS AAA Highest credit quality. Lowest expectation of credit risk Indicate exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events. AA+ Very high credit quality. Very low expectation of credit risk. Indicate very strong capacity for timely payment of financial commitments. AA This capacity is not significantly vulnerable to foreseeable events. AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- High credit quality. Low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be vulnerable to changes in circumstances or in economic conditions. Good credit quality. Currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. Speculative. Possibility of credit risk developing. There is a possibility of credit risk developing, particularly as a result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Highly speculative. Significant Credit Risk. A limited margin of safety remains against credit risk. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment. SHORT TERM RATINGS A1+: The highest capacity for timely repayment. A1:. A strong capacity for timely repayment. A2: A satisfactory capacity for timely repayment. This may be susceptible to adverse changes in business, economic, or financial conditions. A3: An adequate capacity for timely repayment. Such capacity is susceptible to adverse changes in business, economic, or financial conditions. B: The capacity for timely repayment is more susceptible to adverse changes in business, economic, or financial conditions. C: An inadequate capacity to ensure timely repayment. CCC CC C D High default risk. Substantial Credit Risk CCC: Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. CC Rating indicates that default of some kind appears probable. C Ratings signal imminent default. Obligations are currently in default. Rating Watch Alerts to the possibility of a rating change subsequent to, or in anticipation of, a) some material identifiable event and/or b) deviation from expected trend. But it does not mean that a rating change is inevitable. Rating Watch may carry designation Positive (rating may be raised, negative (lowered), or developing (direction is unclear). A watch should be resolved with in foreseeable future, but may continue if underlying circumstances are not settled. Outlook (Stable, Positive, Negative, Developing) Indicates the potential and direction of a rating over the intermediate term in response to trends in economic and/or fundamental business/financial conditions. It is not necessarily a precursor to a rating change. Stable outlook means a rating is not likely to change. Positive means it may be raised. Negative means it may be lowered. Where the trends have conflicting elements, the outlook may be described as Developing. Suspension It is not possible to update an opinion due to lack of requisite information. Opinion should be resumed in foreseeable future but may stay in abeyance for long. Withdrawn A rating is withdrawn on a) termination of rating mandate, b) cessation of underlying entity, or c) the debt instrument is redeemed. Disclaimer: PACRA's ratings are an assessment of the credit standing of entities in Pakistan. They do not take into account the potential transfer / convertibility risk that may exist for foreign currency creditors. PACRA's rating 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.